SIP: Way to disciplined investing

I would like to invest in Sundaram BNP Paribas SMILE and Sundaram BNP Paribas Select Midcap. Is my selection right and when should I invest?

-Sunil Daryani

Both these come under the mid-and small-cap category. They are the best among their peer group. You may invest in them if you already have large-cap diversified funds in your portfolio. The mid-cap fund will give a push to your portfolio in rising markets, while the large-cap funds will prevent any big downside. Hence, for market volatility to work in your favour, do not have a significant position (of over 20 per cent) in the mid-cap space.

We do not encourage people to time markets. When chosen on past track record, funds are more likely to deliver good returns if investments are made in a disciplined fashion. So, choose the systematic investment plan (SIP) route.
 

Fund	Return (%)
	1-year	3-year	5-year
Sundaram BNP  Paribas SMILE Reg	44.65	17.24	23.40
Sundaram BNP Paribas  Select Midcap Reg	47.98	13.02	27.89
Category Avg (Eq:  Mid- & Small-cap)	48.35	7.08	18.91

I am 39. The debt component of my portfolio is 10 per cent and equity 90 per cent. I plan to stay invested for 10 years. I currently hold DSPBR Equity, HDFC Top 200, Fortis Flexi Debt, Magnum Taxgain, Sundaram BNP Paribas Taxsaver and Tata Infrastructure. I have SIPs running in HDFC Top 200 and Sundaram Taxsaver. I wish to add a large-cap fund as a core holding. Would UTI Dividend Yield or Birla Sun Life Frontline Equity be a good addition?

-Deepak S Ray

You already hold six funds. You have a good mix of large-cap, tax-saving, thematic and debt funds. Although we are clueless about your quantum of investment in each of these, we believe you need not add any new fund to your portfolio. Your existing funds are well diversified. In case you want to invest any additional amount via SIPs, you may choose to invest in DSPBR Equity, a multi-cap fund. For tax saving purpose, choose any of your existing tax-saving funds. Avoid further investment in Tata Infrastructure and limit your exposure to 20 per cent in this fund.

I am 28. I want to start monthly SIPs of Rs 4,000 each in the following four funds: Reliance Regular Savings Equity-Growth; HDFC Equity Fund- Growth; DSPBR Top 100 Equity-Growth; IDFC Premier Equity Fund-Growth. I plan to continue my investments for a year in these funds and then redeem them to buy a car. I know it involves too much risk but to meet my short-term goal, I can afford to take some risk. Could you advise on my fund selection and my short-term strategy? Please suggest if I need to make any changes.

-Sumit

While your selection is very good, these are equity funds that are typically meant for investors who can stay in for the long-term. Equity funds are not for the short-term. One should invest only if he/she intends to remain invested for longer, say, at least five years. In case you invest in these funds now and the market falls in one year’s time when you are in need of the money, then chances are that you will have to settle at a loss. However, if you stay invested for the long term, the volatility in the equity market smoothens out and one gets to earn decent returns.

For an investment horizon of around a year, we recommend investors to invest in short-term debt funds, instead of equity. As an alternative, you may even park money in fixed deposits, which will ensure your capital is safe and you earn assured returns.

Value Research