Query corner: Mutual fund

Our expert guides you in all mutual fund related queries.

I am 30 and a first-time mutual fund investor . I need to invest Rs 65,000 to save taxes this financial year. However, I am confused with so many MFs around. Can you guide me as to how I should plan my portfolio ? — JYOTIE BARROT

Tax-saving mutual funds are a good way to get equity exposure with financial products that qualify tax deductions under Section 80C of the Income-Tax Act. You have time till March and you can invest in any of the 5-star rated funds such as Canara Robeco Tax Saver, Fidelity Tax Advantage or Religare Tax plan. You can invest Rs 65,000 in tranches till March, rather than investing in lump sum.

I have invested in some funds in Magnum Taxgain and Magnum Contra since 2007. I would like to switch over to Reliance Banking and UTI Pharma and Healthcare funds . Will it be the right thing to do? — J CHACKO

The call to switch has to be taken by you. Your views are strong when you mention your desire to switch from Magnum Taxgain and Magnum Contra to two sector funds. Though mutual funds offer diversity, investing in specific sectors limits the diversification. Both the sectors that you mention are good, but remember that sectors are cyclical in nature and you need to monitor your investments in these funds frequently . Sector funds fill the need to increase the weightage of a sector in your overall portfolio composition ; however, staying invested only in sector funds is risky.

I want to invest Rs 1,000 every month through SIP. Which mutual fund will be best for me for the longterm ? — SONU

Small- and mid-cap funds are most suited for longterm investing. However, these funds need to be monitored frequently to stay with the best in the category . Because of the inherent risk in these funds, they have the potential for high returns. They are not suitable for new investors because of the risk factor. Frequent monitoring of funds’ performance is necessary for course correction.

What will be the impact of Direct Taxes Code (DTC) on equity linked savings schemes ? Will we get benefits of investments up to March 2011 or 2012? What about units that are locked in up to April, 2012? —RAKESH MISTRY

Once the DTC comes into effect, tax-saving mutual funds will cease to offer tax benefits. In all probability , these will turn up like any other equity mutual fund. Investments, with a three-year lock-in period, made in the financial year 2011-12 , will continue to get the benefits offered by this category of funds.

I have invested Rs 10,500 in HDFC Top 200, Rs 7,000 in DSPBR Top 100, Rs 5,000 in Reliance Reg Saving Equity and . 5,000 in Sundardam Select Mid-Cap . Should I remain invested in these ? — MOHAN

Your choice of funds reveals a mid-cap tilt in your portfolio. There is nothing wrong with such a bias, as long as you are aware of it. The fund selection is excellent and all these funds have the necessary performance to back their presence in your portfolio. You should remain invested in these funds and consider starting SIPs in them. In doing so, you will benefit from regular investments.

How can we get better returns on mutual fund investments ? — ANONYMOUS

There are many ways by which one can get good returns from mutual fund investing. The first step is to start investing. Select a good fund, which has a proven track record, is consistent over market cycles and suits your investment temperament. Next, invest regularly through the systematic investment plans that are on offer. Make sure that you invest irrespective of market movements in both bull and bear runs. And finally, track your fund’s performance to know which way it is headed and make changes so that you keep getting more returns.