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, senior analyst - manager research, Morningstar Advisers India.

Q1) Balachandran Srinivasan writes to us from Chennai. Have cash in hand of Rs 30,000 each month. I am looking at generating regular income after four years. Do you think I should invest in a debt mutual fund and then do a swap?

A) Since you have a four year horizon, if your risk appetite permits, you could take some exposure to equities, but only in large cap funds. We would recommend up to a 20 percent equity exposure with the remaining in fixed income funds, which would largely be through short term funds. You could consider some of the following funds: Aditya BSL Frontline Equity, Franklin India Bluechip, HDFC Top 100 and ICICI Pru Bluechip. After completion of four years, when the need for regular income starts, you can switch all investments into ultra-short duration and low duration funds.

Q2) Siva Prasad writes to us from New Delhi. I have invested Rs 5,000 per month in L&T Emerging Business Growth (Direct Plan), Rs 4,000 per month in Kotak Standard Multicap Growth (Direct Plan), Rs 3,000 per month in Tata India Consumer Growth (Direct Plan), Rs 3,000 per month in Aditya Birla Small Cap Growth (Direct Plan) and Rs 5,000 per month in Reliance Securities GILT Growth (Direct Plan). I started all these SIP's 10 months back. Which of the following mutual fund SIP's should I exit (replace with what) and which to continue?

A) We would recommend stopping the Reliance Gilt Securities SIP. Given RBIs hawkish stance, we don’t recommend taking any duration exposure at this point. Interest rates will remain range bound or harden from here, which will cause mark to market losses on this fund. We recommend switching to a Short Term fund instead. You could consider some of the following funds: Franklin India Short Term Income, ICICI Pru Short Term, Kotak Bond Short Term and Reliance Short Term.

Q3) Rattandeep Sehgal writes to us from Punjab. Want to invest about Rs 2,000 monthly in mutual funds by SIP. Want to create a portfolio to support my studies and I am aiming for a portfolio of Rs 8 to 9 lakh over a period of 5 to 7 years.

A) It's commendable that you are thinking of investing at such a young age. Though, you will need to reconsider your monthly SIP amount to achieve your goal of Rs 8-9 lakh after seven years. If you invest Rs 7,000 per month through SIPs in equity funds, assuming returns of 12 percent per annum, your portfolio value could be Rs 9 lakh after seven years.

Q4) Kunal Jain writes to us from Mumbai. I have investments in Aditya Birla Sun Life Frontline Equity Fund, Axis Long Term Equity Fund, DSP BlackRock Small Cap Fund, Franklin India Focused Equity Fund, Mirae Asset Emerging Bluechip fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Multicap 35 Fund, Reliance Tax Saver Fund and Mirae Asset Tax Saver Fund. Invested atleast Rs 3,000 each in SIP format from last three years, please let me know if any change needed?

A) The funds you are invested into are well managed strategies. On an aggregate basis, your portfolio funds have a market cap allocation as follows: large cap stocks (67.0 percent), mid cap stocks (22.0 percent) and small cap stocks (11.1 percent). Since you are only 29, we expect you would have a long term investment horizon (15+ years). If that is indeed the case, you could look to reallocate some additional funds towards small and midcap funds. Small and midcap funds can be great wealth creators over the long term, but will be volatile in the short term. If you do have the risk appetite, we would recommend taking the overall exposure of small and midcaps to 40 percent.

Q5) Vikram Lotwala writes to us from Surat. Invested Rs 15,000 per month in Tata PE Fund through SIP since 2015. Please advise?

A) Tata PE Fund is a multi-cap fund which focusses on investing in companies with PE ratio lower than the benchmark i.e. valuation conscious approach. While value strategies have their place in investor’s portfolios, given that India is a growth economy, growth style funds should form a core allocation in any investor’s portfolio with Value funds added to provide diversification benefits to the overall portfolio. We would recommend taking exposure to a growth fund, if you are risk conscious, you could invest into a large cap fund. Some good options are: Aditya BSL Frontline Equity, Franklin India Bluechip, HDFC Top 100 and ICICI Pru Bluechip.

Q6) Kartik Dattani writes to us from Mangalore. I have invested Rs 2,000 per month in ICICI Pru Top 100 fund, Rs 1,500 per month in Franklin India Prima Plus Fund and Rs 2,000 per month in DSP Black Rock Midcap fund since two years and I discontinued the latter two and included Rs 3,000 per month in Reliance Small Cap and Rs 3,000 per month in Kotak Select Multicap fund since a year now via SIP. I want you to comment on my current portfolio and also any good bets on ELSS for a 5-7 year time horizon?

A) The funds you are invested into are fairly well managed and we don’t see a need to switch out of any of these. Here is a list of some ELSS funds you can consider: Axis Long Term Equity, Franklin India Taxshield, HDFC TaxSaver, L&T Tax Advantage and Reliance Tax Saver.

Q7) Jatin Agarwal writes to us from New Delhi. I have recently started two SIPs in Motilal Multicap 35 (Rs 5,000 per month) and L&T Midcap Fund (Rs 5,000 per month). I am looking to start a third SIP of the same amount. Which fund should I go with? Shall I go with an Index Fund? My investment horizon is 20-25 years and my investment goal is to set up a venture capital fund.

A) Your portfolio already contains a midcap and a multi-cap fund. Given this context, we would recommend taking exposure to a large cap fund. While large cap funds may not deliver returns like small and midcap funds, they should form the core holding in investor portfolios as they provide stability to the portfolio and fall lesser than small and mid-cap funds during market downturns. Currently, well managed large cap funds will deliver some alpha over an index fund, thus we prefer an actively managed large cap fund for the time being. Some good options are: Aditya BSL Frontline Equity, Franklin India Bluechip, HDFC Top 100 and ICICI Pru Bluechip.

Q8) ‏Mukesh Chaturvedi‏ writes to us on twitter. I have Rs 18.5 lakh in Kotak Multicap. I need Rs 15 lakh for a marriage over six months. Should I redeem now, in instalments as I need it, or in one go?

A) If you have a defined need for liquidity coming up in the next six months, we would recommend switching out the entire required amount into a ultra-short duration fund. Markets are trading near life time highs and volatility is expected, it would be better to exit right away rather than trying to time the market. Invest the proceeds into an ultra-short duration fund till the need for funds arise.

Q9) Adil writes to us on twitter. I have DSP Small Cap Fund in my portfolio. Should I continue SIP or not? If not then, which one should I replace it with? I also have Franklin India Smaller Companies Fund. Please advise?

A) We are not entirely sure of your risk profile and time horizon. Both the funds you are invested into are small cap funds. If you do have a 7-10 year investment horizon at least, we suggest continuing with your investments in these funds. DSP BlackRock Small Cap Fund managed by Vineet Sambre still makes an excellent investment choice in the small-cap fund space. Although, the fund has witnessed a period of relative underperformance lately, we don’t think there is a systemic issue with the fund. All fund managers will go through periods of relative underperformance, depending on their individual styles and which pocket of the market is currently in favor. But over a market cycle, good fund managers will continue to deliver good risk adjusted returns. For instance, this fund has underperformed recently as some of Vineet’s stock calls in the basic materials and consumer cyclicals space haven’t panned out as expected. But we expect him to make a strong comeback over the market cycle.

Q10) Ankit Shah writes to us on twitter. Is Axis Focus 25 is good scheme to invest for five years?

A) Axis Focus 25 fund is a focused fund with a large cap bias. The fund can invest into a maximum of 30 stocks as per its mandate. Focused funds tend to carry more risk due to the concentrated nature of their holdings, although the large cap bias does reduce risk to a certain extent. The fund has done well recently due to its large holdings in stocks such as TCS, HDFC Bank, HDFC Ltd, Bajaj Finance, Bajaj Finserv and Kotak Mahindra Bank, which have all appreciated quite sharply during the last one year. If you don’t mind taking some concentration risk, you could invest into the fund with a 5-7 year horizon, but we prepared to weather interim volatility.

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