I started working two years ago. So far, I've invested only in Public Provident Fund and bank fixed deposits. I want to invest in mutual funds. Which funds should I invest in?
We assume your larger requirement would be to build a portfolio for achieving long-term financial goals. This can be achieved by investing a credible portion of your investments into equities. If your objective is to derive the twin benefits of tax exemption under Section 80C of Income Tax Act, 1961, and growth from equities, you could invest in equity-linked saving scheme.
In case of a moderate risk appetite, it is better to stick to the conservative end of the equity fund spectrum. Consequently, we recommend investing in equity income funds (equity allocation ranging from 20 per cent to 40 per cent) or balanced advantage funds (equity allocation ranging from 30 per cent o 80 per cent). These funds are structured to invest in equities when markets are cheap and book profits when markets are rising, thus minimising risk and aiming to provide good long-term returns.
Among the sectoral funds, which ones look good? Is it better to invest in a sectoral fund through a systematic investment plan (SIP) or a lumpsum?
Infrastructure and banking sectors are a play on economic recovery. Improving macroeconomic variables such as current account deficit, fiscal deficit and inflation, backed by a stable government, is a structural positive for the economy and could benefit these sectors. You could use lump-sum or SIP, depending on your situation. If you have a positive view on a particular theme/sector and liquidity for investing the desired sum, invest in sector funds through the lump-sum route. However, if you believe the theme could play out in the long-term and you're willing to invest in a staggered manner to achieve long-term wealth creation, SIP would be preferable.
The views expressed are expert's own. Send your queries to yourmoney@bsmail.in
Nimesh Shah, managing director and chief executive officer, ICICI Prudential AMC, answers your questions
