Query Corner: Mutual funds

Our expert guides you in matters relating to mutual funds.

MUTUAL FUNDS FOR SHORT-TERM INVESTORS

I am a short-term investor and am interested in Mutual Funds (MF). Which sector should I choose to accrue attractive returns in a short time. I already have some MFs, namely SBI PSU Fund and IDFC MF. Is it a good or bad investment? Can I invest in any other MF?
SWAPAN NASKAR

For short-term goals, you may invest in debt/ liquid MFs. For this, we suggest HDFC High Income Fund and Reliance Short Term Fund. The SBI PSU Fund, in the last six months, has given -4 % returns against more than 6% returns of HDFC Top 200 fund or Birla Sun life frontline equity. So, we suggest you move out of this and start investing in the above stated funds. You have not mentioned the name of the IDFC MF scheme, so we are unable to guide you.

INVESTMENTS FOR THE LONG TERM

I have investments in PPF, FDs and LIC policies and wish to increase my exposure to equities and MFs. Currently, I have invested in Reliance Industries, Reliance power, Fidelity special situation fund, HDFC Top 200, HDFC equity, Tata Indo global Infra and Reliance Equity Fund. What advice would you give for a time frame of 10 years to invest in stocks and MFs?
AMIT BUTANI

Since your goal horizon is more than seven years, we recommend an aggressive asset allocation strategy where the equity-debt ratio is 80:20. As the goal approaches, you invest in debt schemes with lesser risk. MF investments are subject to market risk. The NAV will change with the changes in the benchmark of the MF. We do not recommend direct exposure to equity stocks as it is directly linked to equity markets . Instead, choose a good equity diversified MF with good track record and consult a fund manager who can select the investment portfolio of a particular fund based on the objective . We recommend you redeem Reliance Natural Resources & Tata Indo Global Funds which are thematic funds and invest in other funds which are performing better. Thematic funds are single sector or theme bound and the themes run out of steam in due course.

VARIOUS FUNDS BASED ON FINANCIAL GOALS

I am employed in a PSU with 29 years of service remaining. My take-home salary is Rs 35,000 with 3% increase y-o-y . My medical is 100% covered by the company and I have an LIC Jeevan Anand of Rs 3 lakh for 30 years with annual premium Rs 12,500. Apart from this and PF I have no other investments . The take home salary of my fiancee is Rs 25,000. From March 2011, I will have Rs 8,000 to invest and this will increase to Rs 18,000 from October. We will be living in company accommodation or parents' house. My long-term goals are a child's education and a house. My target is 30-40 % equity and 60-70 % debt investments through SIPs or MFs. If possible, a mix of regular income and growth funds.
MANDEEP SINGH

For tax planning, we recommend the PPF route. You can make a maximum investment of Rs 70,000 annually for tax exemption. You will get another deduction of Rs 12,500 per annum for life insurance . For child's education, you should invest in SIP in equity and debt mutual fund in 80:20 ratio. This should generate about 11%, assuming returns of 14% and 7% on equity and debt respectively. For the house, we suggest you save for the down payment and take a home loan for the rest. Understandably, you plan to create a retirement corpus for yourself. You may invest 100% of your investments in equity mutual fund through SIP. You can expect a corpus of say Rs 80,00,000 after 29 years.