Start investing in mutual funds now to ride ‘recovery’ in markets: Experts

Experts say markets are likely to deliver in 2013 after a gap of five years. That means you have to start investing in mutual fund schemes with a good track record if you want to ride the wave. However, just picking an MF scheme with a good record is not enough, you should get the asset allocation right.

“You should invest in diversified equity funds with a long-term record through systematic investment plan for at least five years,” says Jyotheeshkumar, senior VP (marketing) at HDFC Securities.

After a slew of policy announcements by the Centre, there is renewed interest in equities, especially from the foreign investors. In the three months ended November 8, multi-cap equity funds as a category delivered 9.17% returns, says Value Research. Although the numbers are exciting, do not decide your investment strategy based on this short-term performance.

“We expect some clarity on policy issues and future course of action for reforms in winter session of Parliament. Barring some shortterm volatility, equities should do well in long term,” says Amar Ranu, associate VP(research and advisory) at Motilal Oswal Wealth Management. Your core MF holdings should comprise multi-cap equity funds and large-cap equity funds with a long-term record.

“If you are a relatively new to MFs, you can allocate more to large-cap equity funds,” says Lovaii Navlakhi, MD and chief financial planner at International Money Matters. You should have 60% to 75% of money in large and multi-cap funds depending on your risk profile. If you can digest risk, you can consider investing only 60% in these funds. Mid and small-cap funds too have been attracting a lot of investor attention. In one year, these funds on an average have given 13.94% returns.

“If you can digest the risk, you can consider up to 25% investment in mid and small-cap funds,” says Navalakhi. But invest with a three to five-year time frame, he adds. As diversified equity funds, be it large cap, multi cap or mid and small cap, build a core portfolio. You should also think of some meaningful diversification.

“We advise our clients to invest 5% of their portfolio in funds investing in international equities,” says Navalakhi. These funds offer good geographical diversification for investors, he adds.

Among the non-core components of mutual fund portfolio, savvy investors prefer to have some thematic bets. It is a high risk high returns opportunity.