[bluevolt]

Hi,

I am a first time investor in mutual funds. I did my initial research about mutual funds and related stuff by reading this entire thread over a period of time and other related articles in economic times etc and other sources.

Please recommend me funds for my below goals - (I would be investing directly through fund house's website)

-> A 3 year short term fund (Support Required - Like for buying new car)

-> A 5 year term mid short term fund (Support Required - Like kids school admission) - Though I am just 26 and not married yet But just planning

-> A 7-10 year mid long term fund (Support Required - Like for buying a house)

-> A 20-30 year long term fund (Support Required - Like for planning retirement)

-> A tax saving plan (Though I finish my exemption through PPF)

Any further guidance for managing/suggest changes in my investment plan as described above.

As of now I am completely depending on FDs and I am not unhappy with them as well for their simplicity and no as such - worried & hassles!

[hserus]

For such short term needs as a new car three years down the line, or school admission and donation fees in five years, stick to a recurring deposit in a bank.

Stocks are made to be held rather than sold unless you really need the money.

And who knows you may get married and become a dad in two years rather than five, or need a new car ASAP for some reason. Such events only have approximate time horizons that you can't readily calculate.

For sensible long term investing - what funds did you decide on? As you say you have done your research and I am sure you reached some conclusions.

Tax saving - unnecessary and there are multiple ways other than mutual funds that you can use for your 80C quota of 1.5 Lakhs. PF, PPF, life insurance policy (only pure term, don't buy ulip or other insurance plus investment products)

[nowwhat?]

Originally Posted by bluevolt

I am a first time investor in mutual funds. I did my initial research about mutual funds and related stuff by reading this entire thread over a period of time and other related articles in economic times etc and other sources.

Please recommend me funds for my below goals - (I would be investing directly through fund house's website)

Since you have already done so much research, why don't you pick a few funds yourself and post them here? I am always curious to know what others come up with and there are plenty of knowledgeable investors here who could opine.

You seem to be working on a "Goals-based investing" approach which envisages different MF allocations for different goals, sometimes such investors even invest in different fund(s) for each individual goal.

That is one way to invest, but not many follow it. For starters, life isn't easy to predict. Just when you are thinking of buying a car, you may decide to buy a flat or some expense may crop up. I personally do not complicate life too much and just think of maximizing my returns from MFs based on my risk appetite.

Originally Posted by bluevolt

-> A 3 year short term fund (Support Required - Like for buying new car)

You should know that a car is a waste of money (I know Team-BHP is the wrong place to say that, but still...) and most youngsters buy a car, iPhone, etc. as a status symbol. If you can get by with public transportation, nothing like it especially in a city like Delhi. A car would come in handy when you have a family though.

Originally Posted by bluevolt

-> A 5 year term mid short term fund (Support Required - Like kids school admission) - Though I am just 26 and not married yet But just planning

-> A 7-10 year mid long term fund (Support Required - Like for buying a house)

-> A 20-30 year long term fund (Support Required - Like for planning retirement)

That is some forward thinking, I really don't know what to make of it.

However I appreciate the fact that you have already saved up in FDs and you are thinking of MFs.

Originally Posted by bluevolt

-> A tax saving plan (Though I finish my exemption through PPF)

Don't enter a tax saving plan if you get no tax benefit. ELSS is better than PPF so long as you invest via SIP and can stomach the volatility.

Originally Posted by bluevolt

As of now I am completely depending on FDs and I am not unhappy with them as well for their simplicity and no as such - worried & hassles!

Honestly FDs never gave me as much comfort as MFs. Aside from the fact that the inflation adjusted return after tax (in highest bracket) on FD is always negative, breaking an FD always gave me a nagging feeling of guilt. On the other hand investing in MFs for such a long time primarily through SIP has given me positive inflation adjusted returns and removed a lot of my initial fear in the volatility of the markets, so much so that I actually look at it as an opportunity and make lump sum investments when the markets are down for a prolonged period. Moreover I don't feel a prick on my conscience on the odd occasion that I may have to withdraw funds, the last time I did it a couple of years ago, the markets rose in a few days and it was as if I never withdrew any money.

[sansvk]

Originally Posted by bluevolt

Hi,

I am a first time investor in mutual funds.

Since you are a first time investor, its best to start with just one fund. Equities investing tends to be volatile. As you have been used to the comfort of FDs, you will need to relearn a few things such as patience and discipline. One you feel you can handle the volatility, you can go ahead and invest in more funds.

[Avenger_123]

I have been contemplating investing in NPS Tier II account in lieu of MF portfolio. Apart from reduced transaction costs, its performing well and my average return has been around 12 -13 % in last 2 years, this is in automatic option. Compared to the mixed bag returns in MF. Also, we can withdraw money anytime in Tier II.

Also, with the eNPS it's easy to invest even if you leave the country unlike MF which has lot of challenges, as you are supposed to close your existing account when you leave the country, as you start getting treated as NRI.

Only uncertain part is the taxation at withdrawal, any thoughts or concerns with this approach?

[hserus]

Run the numbers, check XIRR - there should. R spreadsheets on for example freefincal

[saket77]

Originally Posted by Avenger_123

I have been contemplating investing in NPS Tier II account.
Only uncertain part is the taxation at withdrawal, any thoughts or concerns with this approach?

Well, I believe current NPS rules do not permit more than 50% investment in equity in NPS. So, although the expense ratio may look a lot less for NPS, but taking into consideration that 50% equity capping, maintaining a corresponding tier 1 NPS account, the unfavorable taxation (EET), the permanent lockin for tier 1, and all pension payments being taxable, I am totally against investing in NPS.
Also, given the low expense ratio, I do not expect the best fund managers to be on the job. Not sure though.
But in case you are comfortable maintaining a Tier 1 account, then you may opt for investing in equities through a tier 2 account but keep in mind the 50% cap.

Regards,
Saket.

[bluevolt]

From my limited knowledge about mutual funds, I have shortlisted following below funds -

Under Equity

ICICI Pru Value Discovery Fund (G)
SBI Blue Chip Fund (G)
ICICI Pru Value Discovery Fund (G)

Under Debt

ICICI Pru Banking & PSU Debt (G)

Under Hybrid

Birla Sun Life Bal. 95 Fund (G)


I am still studying these funds, I am not sure if these are really the right funds for me or there can be amendments in each category. What if I only invest in a hybrid fund considering it will anyways invest 65% in equity and rest in debt. I would like to start as low as 10,000 initially per month for mutual funds at max.

Originally Posted by hserus

For such short term needs as a new car three years down the line, or school admission and donation fees in five years, stick to a recurring deposit in a bank.

Stocks are made to be held rather than sold unless you really need the money.

And who knows you may get married and become a dad in two years rather than five, or need a new car ASAP for some reason. Such events only have approximate time horizons that you can't readily calculate.

For sensible long term investing - what funds did you decide on? As you say you have done your research and I am sure you reached some conclusions.

I agree that short term mutual funds don't give remarkable returns. FD/RD are near about same in terms if returns for short term investment with not so large investment amount.

Since I quite beginner in this investment instrument, I would like to test waters with 3 years investment period and further expanding portfolio considering my long term goals.

Using online calculators, I have found the power of compounding in mutual funds creates good wealth in minimum period of 15 years. Considering my age 26, I would have some wealth in terms of cash at the age of 41 years!
15 years! Seems too long at this point of time

Originally Posted by nowwhat?

Since you have already done so much research, why don't you pick a few funds yourself and post them here? I am always curious to know what others come up with and there are plenty of knowledgeable investors here who could opine.

You should know that a car is a waste of money (I know Team-BHP is the wrong place to say that, but still...) and most youngsters buy a car, iPhone, etc. as a status symbol. If you can get by with public transportation, nothing like it especially in a city like Delhi. A car would come in handy when you have a family though.

That is some forward thinking, I really don't know what to make of it.

However I appreciate the fact that you have already saved up in FDs and you are thinking of MFs.

Don't enter a tax saving plan if you get no tax benefit. ELSS is better than PPF so long as you invest via SIP and can stomach the volatility.
.

I have plan of buying car with all my money when I will be at least 30 (i.e. 4 years down the line - around 2020 when 5th Gen Honda City must have be on roads by then). I don't want to take any loan on depreciating assets ever and we keep our cars for at least 10 years. Can't be using parent's car even at that age.

I don't have that much urge to spend on gadgets like buying iPhones or replacing your gadgets every year or so. I am still on my second Android Phone in period of 4 years. My current HTC is over 2 year old and I would like to use it till it lasts. SO in that terms, I am bit conscious about money even at the beginning of my career.

I am still giving lot of thought before I start investing in mutual funds. My parents never invested in Mutual funds nor they will in future. They are more used to conventional methods of investing like FDs, Gold and real estate!

[hserus]

Well good - you are money conscious and don't waste money.

Maybe a judicious mix of large, mid cap and balanced funds, leave debt for now as it is a more complex instrument and not quite ideal for long term investing.

Also start with a bare minimum of funds maybe three at the most - don't expand beyond that.

For example -

Large cap - franklin india bluechip or ICICI pru focused bluechip

Midcap - mirae emerging bluechip / icici pru value discovery

Balanced - e.g. Birla sunlife 95 / hdfc balanced fund etc

Pick and allot a certain percentage of your money that you plan to invest across these categories. And make sure the money you invest is disposable
That is you can afford to lose it or grin and bear it if the value drops and keeps dropping for a while due to a stock market downturn (that is a nice time to keep investing!!)

Put some money aside for needed and forecastable purchases and also keep an emergency fund untouched where you can easily get at it. Make sure your health, life and vehicle are fully insured (pure term policies for life insurance don't let lic unclejis, bank relationship managers etc sell you any insurance plus investment plans).

That should do very well for a start.

Keep an eye on your weekly / monthly etc statements so you know how much your investments are notionally (that is until you sell them) worth in your hands.

[bluevolt]

Originally Posted by hserus

Well good - you are money conscious and don't waste money.

Maybe a judicious mix of large, mid cap and balanced funds, leave debt for now as it is a more complex instrument and not quite ideal for long term investing.

That should do very well for a start.

Keep an eye on your weekly / monthly etc statements so you know how much your investments are notionally (that is until you sell them) worth in your hands.

FINAL MUTUAL FUNDS SHORTLISTED

- SBI Blue Chip Fund (G) (85% In Equity and 15% in Debt)
- HDFC Balanced Fund (70% Equity and 30% Debt)
- ICICI Prudential Balanced Fund (70% Equity and 30% Debt)

As suggested, I also want to keep maximum 3 funds as of now. Please advise if I should swap any other better funds with what I have chosen. Rankings I have considered from ValueResearchOnline. Time line for investing - I will surely invest til 3-5 years in these funds and might extend to 7-10 years as depending on conditions. Any further guidance towards this will also be highly appreciated.

Also, for retirement planning I have my company's PF and my PPF instrument. For SIP, can you please suggest me a fund for very long term investment - say 34 years! Or should I wait and study more about mutual funds investments.

[hserus]

They are good funds but they're shall we say extremely "heavy" - several thousand crores assets under management (AUM) so they'll be a trifle slow to react to any upswing or downturn in the markets. That's not necessarily a bad thing in long term investing.

As for 34 years - you're essentially looking at an extremely long horizon during which the current generation of fund managers will surely quit, retire, pass away etc and new people will take over. And the AMCs operating these funds themselves may undergo some change or the other.

Keep investing in what you have selected, keep an eye on the funds themselves and on the AMCs. After that, you'll figure out by yourself what needs to be kept, what needs to be cashed out, changed etc. 34 years down the line you'll be a very experienced investor yourself.

[bluevolt]

Originally Posted by hserus

Keep investing in what you have selected, keep an eye on the funds themselves and on the AMCs. After that, you'll figure out by yourself what needs to be kept, what needs to be cashed out, changed etc. 34 years down the line you'll be a very experienced investor yourself.

So can I extend my investing period on my current fund? For example if i select a fund for 5 year SIP duration, then can I further extend SIP to next 5 years instead of taking amount back?

[hserus]

Originally Posted by bluevolt

So can I extend my investing period on my current fund? For example if i select a fund for 5 year SIP duration, then can I further extend SIP to next 5 years instead of taking amount back?

Of course. Mutual funds are not like an FD where you absolutely have to withdraw your money.

Initially start out with annual SIPs and open fresh SIPs in the same fund with your same folio number as and when they expire.

Or in some funds such as Quantum, they allow you to set a so called perpetual sip where you have to cancel it, till then they will debit the amount.

[nowwhat?]

Originally Posted by bluevolt

Under Equity
ICICI Pru Value Discovery Fund (G)
SBI Blue Chip Fund (G)
ICICI Pru Value Discovery Fund (G)

Under Debt
ICICI Pru Banking & PSU Debt (G)

Under Hybrid
Birla Sun Life Bal. 95 Fund (G)

If you are planning to invest in both equity and debt (up to 35%), you should only consider a balanced fund. Balanced funds are more tax friendly than debt funds if held for over a year.

Originally Posted by bluevolt

I agree that short term mutual funds don't give remarkable returns. FD/RD are near about same in terms if returns for short term investment with not so large investment amount.

No point investing short term in equity mutual funds. No point looking at 1-year return unless within a larger context.

Originally Posted by bluevolt

Since I quite beginner in this investment instrument, I would like to test waters with 3 years investment period and further expanding portfolio considering my long term goals.

This is the right approach. It takes around 3-5 years of SIPs to gain confidence in mutual funds.

Originally Posted by bluevolt

Using online calculators, I have found the power of compounding in mutual funds creates good wealth in minimum period of 15 years. Considering my age 26, I would have some wealth in terms of cash at the age of 41 years!
15 years! Seems too long at this point of time

15 years seems long to you because you are still relatively young

AFAIK, nothing beats MFs in creating wealth especially considering that India's economic growth story has probably only just begun (for the third time). A year or so ago, I did an analysis of my real estate investments (most of them have gone up manifold), but when I did their CAGR I was shocked to know that all of them underperformed the CAGR of my MF portfolio.

Originally Posted by bluevolt

I have plan of buying car with all my money when I will be at least 30 (i.e. 4 years down the line - around 2020 when 5th Gen Honda City must have be on roads by then). I don't want to take any loan on depreciating assets ever and we keep our cars for at least 10 years. Can't be using parent's car even at that age.

I don't have that much urge to spend on gadgets like buying iPhones or replacing your gadgets every year or so. I am still on my second Android Phone in period of 4 years. My current HTC is over 2 year old and I would like to use it till it lasts. SO in that terms, I am bit conscious about money even at the beginning of my career.

You seem to have a wise head on your shoulders.

Originally Posted by bluevolt

I am still giving lot of thought before I start investing in mutual funds. My parents never invested in Mutual funds nor they will in future. They are more used to conventional methods of investing like FDs, Gold and real estate!

There is a reason for this. MFs in the 90s had a really bad reputation after Peerless Finance, UTI Unit 64, etc. In fact when I returned from the US over a decade ago, one day I stumbled upon some National Savings Certificates (NSC) and UTI Mastergain 92 that I had invested in mostly for tax reasons. When I went to redeem, NSC had more than doubled whereas with Mastergain 92 I basically got my money back. With this kind of experience, it is no wonder the previous generation ran away from MFs.

The adage in India is that real estate never goes down (unlike stocks or MFs), but try selling property in a down market and only then you will realize that it is not liquid. There are two houses for sale down my street, the owners have been trying to sell them for over a year, but no one is interested in them, not even at a discount. In real estate, liquidity dries in a down market. In MFs, liquidity is always there, but the price drops.

Originally Posted by bluevolt

FINAL MUTUAL FUNDS SHORTLISTED
- SBI Blue Chip Fund (G) (85% In Equity and 15% in Debt)
- HDFC Balanced Fund (70% Equity and 30% Debt)
- ICICI Prudential Balanced Fund (70% Equity and 30% Debt)

SBI Blue Chip is a large cap fund, it has around 15% exposure to debt now (wonder why!), but it has no mandate AFAIK to invest in debt. Haven't spent too much time on this fund, but I think SBI Magnum from the same stable is better.

Looking at your posts, I think what bests suits you is a Balanced Fund. You don't really need to invest in three, one works out just fine. The HDFC twins (Balanced and Prudence) seem to be doing well even though rest of their MFs have underperformed in the last few years.

Originally Posted by bluevolt

So can I extend my investing period on my current fund? For example if i select a fund for 5 year SIP duration, then can I further extend SIP to next 5 years instead of taking amount back?

These days, many funds allow a perpetual SIP. The approach towards MFs should be to invest until retirement. A fund should ideally not be redeemed, though you can redeem to invest in some other fund if you lose confidence in the fund you invested in.

[pradkumar]

HDFC Balanced is good, but I am not sure about HDFC Prudence.

1) Prudence has too much exposure to public sector banks compared to Balanced -- 6.24 in SBI, 1.64 in Bank of Baroda and 1.45 in Canara Bank.

2) Balanced has more AAA rated debt holdings.

3) Prudence has a Beta of 1.25 compared to 0.92 of Balanced, which means Prudence investment is more volatile compared to the benchmark index.

4) Prudence has lesser Sharpe and Sortino ratios compared to Balanced. When it comes to these ratios, the higher the better.

Thanks,

Pradeep

Originally Posted by nowwhat?

If you are planning to invest in both equity and debt (up to 35%), you should only consider a balanced fund. Balanced funds are more tax friendly than debt funds if held for over a year.



No point investing short term in equity mutual funds. No point looking at 1-year return unless within a larger context.



This is the right approach. It takes around 3-5 years of SIPs to gain confidence in mutual funds.



15 years seems long to you because you are still relatively young

AFAIK, nothing beats MFs in creating wealth especially considering that India's economic growth story has probably only just begun (for the third time). A year or so ago, I did an analysis of my real estate investments (most of them have gone up manifold), but when I did their CAGR I was shocked to know that all of them underperformed the CAGR of my MF portfolio.



You seem to have a wise head on your shoulders.



There is a reason for this. MFs in the 90s had a really bad reputation after Peerless Finance, UTI Unit 64, etc. In fact when I returned from the US over a decade ago, one day I stumbled upon some National Savings Certificates (NSC) and UTI Mastergain 92 that I had invested in mostly for tax reasons. When I went to redeem, NSC had more than doubled whereas with Mastergain 92 I basically got my money back. With this kind of experience, it is no wonder the previous generation ran away from MFs.

The adage in India is that real estate never goes down (unlike stocks or MFs), but try selling property in a down market and only then you will realize that it is not liquid. There are two houses for sale down my street, the owners have been trying to sell them for over a year, but no one is interested in them, not even at a discount. In real estate, liquidity dries in a down market. In MFs, liquidity is always there, but the price drops.



SBI Blue Chip is a large cap fund, it has around 15% exposure to debt now (wonder why!), but it has no mandate AFAIK to invest in debt. Haven't spent too much time on this fund, but I think SBI Magnum from the same stable is better.

Looking at your posts, I think what bests suits you is a Balanced Fund. You don't really need to invest in three, one works out just fine. The HDFC twins (Balanced and Prudence) seem to be doing well even though rest of their MFs have underperformed in the last few years.



These days, many funds allow a perpetual SIP. The approach towards MFs should be to invest until retirement. A fund should ideally not be redeemed, though you can redeem to invest in some other fund if you lose confidence in the fund you invested in.