Want to invest in mutual funds but don't know how to go about it?

Get all your mutual fund related queries answered by our expert, Himanshu Srivastava, Morningstar Investment Adviser India.

Q: Anantha Venkata Krishnan PV wants to know whether Tata Retirement Savings Fund-Progressive Plan good for creating pension. Any similar scheme in other mutual fund houses?

If you look at the retirement planning exercise, it’s a very elaborate exercise, a complex one. There are lot of factors that are taken into account. One of the major factor is the age, income, liability, asset allocation, risk appetite and financial condition that has to be taken into account, if you plan for a retirement corpus. It’s a long-term exercise. You need to have a proper asset allocation in place. It is very difficult to achieve your retirement target, if you do not have a mix of asset allocation like equity and fixed deposit income. If I talk about Tata Retirement Progressive Plan, this is predominantly an equity fund, when minimum investment equity has to be around 85 percent. So it doesn’t offer proper diversification. So if at any point of time you have to reduce equity allocation based on your demand, based on your requirements, you cannot do that. So it requires a lot of equity as well as fixed income and other products to fill in. Just investing in one fund doesn’t offer proper diversification. So diversification is also important. Therefore, I would recommend – 1) the investor should get the right asset allocation mix for him depending on his age, depending on his financial condition and then he should try populate funds within that. A diversified portfolio with right asset allocation will help him achieve his retirement target otherwise with just investing in one fund. I do not think that he will be able to achieve that.

Q: S Rupchand wants to know which fund to invest in out of Axis Focused 25 Fund and Axis Bluechip Fund?

I have been through your profile and looking at your age, it won’t be advisable to have almost all the investments in an equity oriented fund. So you need to have a proper asset allocation, wherein you need to have higher allocation to fixed income products and lower allocation to equities. Just a standard asset allocation if I have to suggest, you can invest 70-75 percent in fixed income whereas 25-30 percent in equities.

Coming to your funds, let us start with Axis Focus 25 Fund. You need to understand something about the focus category as well. These are those categories, which invest a maximum of 30 stocks in their portfolio, which means a highly concentrated portfolio and aggressive style of investing. I do not see that fitting into your profile. So frankly speaking, Axis Focus 25 should be out of the way. Coming to the equity portion of the portfolio, you need to invest maximum in largecap funds. On the largecap side, Axis Bluechip is one of the option that you can have. You can have other options as well, which are good, well managed funds.

If I have to give few names, you can consider HDFC Top 200, Franklin India Bluechip, Aditya Birla Frontline Equity – these are some of the options that you can consider for the largecap portion of your portfolio, but one thing that you have to be very clear of is that you need to have an investment horizon of five-six years for equity schemes. If you do not have the risk appetite, then you should try and stay away from that and focus on fixed income portion.

Coming to the low duration that you want to invest in the fund. There are products, which offers three month to six month of investment tenure on the fixed income side. Categories such as low duration, ultrashort category should be fitting into your portfolio. There are funds, which invest only in AAA rated investments and that should be your investment universe.

Regarding equity savings fund, these are the funds which try to do lot of things within that. So they take hedge position, they invest directly in equity; some portion in equity, which are not hedged they invest in cash, they invest in bond as well. Again, a different kind of an investment opportunity that you can have there. It more or less depends on your risk appetite; how much you want to have that portion of your investment in that particular scheme. So I would rather commend to go with straight forward schemes, which you are able to understand and comprehend the investment proposition that are offered. So at any point of time, if you want to take a call on those schemes, it’s easy to do that.

Q: Rivika Chauhan has SIP of Rs 10,000 in HDFC Midcap Opportunities Fund and she want to start an additional SIP of Rs 10,000. She wants to know which fund to invest in for one year.

If you have an investment horizon of one year, then equities are not for you and particularly midcaps are definitely not for you. So if you have investment horizon of one year, the investment that you have made, will not help you much. This is an investment where you have to stay invested for more than five years and not less than that at any point of time. It’s a high risk, high return investment avenue. Therefore, I would recommend other fund or other SIP that you want to start for Rs 1,000. You can start investing in a well-managed debt oriented fund particularly from the short-term duration side especially funds from the short-term bond category or credit risk category if you have a slightly high risk appetite or low duration category. These are the funds that you should be invested in at the moment for your studies that you want to go over one year period. I would not recommend you to exit from HDFC Midcap Opportunities. What I would rather tell you is to continue invested in that. It’s a good fund. So continue your SIP in that fund, but on the other hand, the other SIP that you are starting, you can continue with debt oriented fund.

Q: M Mishra has a total investment of Rs 10 lakh in ICICI Pru Equity and debt fund-monthly dividend. She got two monthly dividends of Rs 8,000 each while her goal was Rs 10,000. She wants to know why the dividend received was less and whether she should continue with the fund or not.

There are a couple of things that I would like to highlight here and first and the most major one is the dividend thing. If you are investing in mutual funds, these are market-linked instruments and they don’t guarantee dividends at all. Whether it is equity fund or a fixed income fund, there is no guarantee of further dividend that you are receiving. So if someone has told you that you will be receiving a dividend of one percent or Rs 10,000 per month, I think you have been mis-sold a product.

The other part of the query is why the dividend is less? Largely because the fund has not been doing well for some time. How dividends are distributed? So dividends are a part of returns. Those returns the fund has generated and that returns are being given to the investors as a part of the dividend. If the fund is not able to generate enough returns, how will the fund give dividend to investor? That is one part.

The other part whether you should stay invested in this fund or not, clearly this fund doesn’t match the goal that you have set for yourself. It is an equity-linked fund, so there is no guarantee of a dividend that you will receive on a month-on-month basis. I would rather recommend that you continue with your investments or you rather make fresh investments in some of the debt-oriented schemes, where the certainty is higher for consistent dividend compared to an equity oriented fund.

Q: Karan Ravi has invested in multiple funds and wants to know if they are advisable in the long run.

Let me give a feedback on the portfolio that you are holding. You have three sector-thematic funds and five small and midcap funds. I hope you understand that dynamics of how these funds work. It is a relatively aggressive portfolio assuming that the larger chunk of your portfolio is in these funds. If you look at sector and thematic funds, they are cyclical in nature. So it is very important for the investor to understand the dynamics of those sectors and time the exit and entry into that. That is where you make money in sector funds. If you are not able to do that, if you don’t have the expertise then these funds are not for you.

On the mid and smallcap side, these are good funds obviously over the long-term, but then they have intermittent risk aspects. So they are high risk return kind of investment proposition. So you need to understand that when the markets are doing well, these funds will give you exceptional returns, but when the markets are not doing well, they can equally come down.

So I hope the construction of your portfolio that you have made is after taking into account your risk appetite, your investment objective and the investment horizon. But if that has not been taken care of, so I would recommend you to do that first and after that, you can look at your portfolio because that will give you an idea whether the portfolio that you have constructed so far is in the right track as per your requirement or not.

Q: Mitali Kulshrestra had invested in ICICI Pru Elite Life Super-Maximiser V with an investment of a yearly premium of Rs two lakh. Her goal is to save some money before getting married at the age of 30. She wants to know if she should continue with this scheme or switch.

The goal that you have set or the investment that you have made are not in-line with each other. I would like to suggest you that given the kind of goal that you have for yourself, you shouldn’t be investing in this fund rather you should be investing more into fixed income funds and some allocation to equities as well.

Given that you are saving for your marriage, that is the investment horizon is four years, the time is less. So you cannot have everything in equities. So ideal allocation should be around 70-75 percent fixed income and 25-30 percent in equities. On the fixed income side, you should be more into the short-term category, because that is where the certainty of the returns are and less volatility given that you have a very small time frame that is left with you.

For that, you can consider funds from short-term bond category, you can consider fund from credit risk category, if you have the risk appetite for that. On the equity side, you should rather stick to largecap funds.

Coming to the insurance policy that you have, you need to understand that ULIP is one of those insurance products, which will help you make money only if you stay invested till the tenure of the fund. If you try to redeem or if you try to stop your investments or paying premium after five years, it will be a loss-making proposition, because the charges tend to be higher in the initial part of the policy. So if you want to redeem that, I won’t suggest you to pull the plug right away, you should talk to the insurance companies, you should try and find out what will be the loss that you would incur and if you are comfortable with that, only then you redeem it otherwise you try to stay invested till the time the tenure of the policy is.

At the same time, if you want to have a pure insurance need, if you have that, you can try and invest in some or get some term plan for yourself.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Aug 2, 2018 6:17 PM IST