Sector funds are risky

I plan to invest Rs 1,000 every month through systematic investment plans (SIPs) for three years. I have selected Reliance Banking, Reliance Pharma and Magnum FMCG funds. Should I invest in these sector funds?

- Vinod

Investing in sector funds is tricky. The trick is in getting the right sector at the right time. Sector funds find place in a portfolio only when the sector in question is not well represented and the right balance is needed. There is another instance when sector funds find favour; when investment in them is used as a strategy to benefit from swings anticipated in the sector to boost overall portfolio returns or hedge the portfolio against violent swings.

Since you have stayed away from  sector funds so far, it is worthwhile to evaluate your portfolio holdings and check the sector allocation and weightage. Based on this, you can consider adding the above funds to your portfolio. However, do track the performance of the funds frequently, as these are risky, considering the narrow segment in which they invest.

I plan to save Rs 5,000 for my son's future. I am planning to invest Rs 1,000 in a bank recurring deposit and Rs 4,000 in an equity fund. What is your view on this strategy, considering I will need this money 18 years from now? Do I need a demat account for this?

- Ruchi

In the long-term, equities outscore all other asset classes. With an 18-year time horizon, you should consider investing in equity mutual funds (MFs). If you are new to investing, it will be a good idea to start investing in a balanced fund, such as HDFC Prudence, HDFC Balanced or Reliance Regular Savings. Track investments in these funds for six to eight months to understand how investing through SIPs works. Once you are comfortable with these, look for a large- and mid-cap fund such as HDFC Top 200, Birla Sun Life Frontline Equity Plan A or Fidelity India Growth. As you approach the fifteenth year of your investment time frame, you can move your investments into a balanced fund again or move 70-80 per cent of your corpus into a debt fund, to protect the corpus built over the years.

Make sure you track the performance of your funds at least once a year to make any changes, as a fund’s performance can vary over a period. Over 18 years, if your funds manage to earn 15 per cent returns, you can hope to build a corpus worth Rs 55 lakh. You do not need a demat account to start investing in MFs.

I have Rs 40,000 to invest in an equity-linked savings scheme to avail tax benefits. Which is the best fund to invest in? Should I invest in a single fund or split my investment?

- Aditya V Daga

Tax planning funds are suitable for investors who are keen to invest in diversified MFs that also offer tax benefits. With some time for the tax planning season to end, you should consider investing the money in instalments and not as a lump sum. You can select the growth option from Canara Robeco Equity Tax Saver, Fidelity Tax Advantage or Religare Tax Plan to invest in. All the three are five-star rated funds and have a proven track record and history to support.

I would like to invest in a gold fund through SIPs. Which is the best one to invest in?

- Ramesh Chandra

You need a demat account to invest in gold exchange-traded funds (ETFs). But there is no SIP facility.Today, there are 10 gold ETFs to select from, with little to choose in terms of performance, as all these schemes directly invest in physical gold. They  are listed on the major stock exchanges and you can buy and sell them just like you do with shares.

Value Research