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A CFP’s take on Mutual Funds

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Our first article on Expert Roundtable is an interview with Mr. Ashish Erry.

Photo-Ashish Erry

Mr. Ashish Erry is a practising Certified Financial Planner(CFPCM) and is based out of Gurgaon.

Ashish shares his thoughts on Mutual funds – how to choose them and how to maintain an ideal portfolio. Read on to know more!

What are the 5 things one needs to look for when choosing a mutual fund?

The 5 things that one needs to ensure before choosing a mutual fund are:

1) Identify the purpose of investment into this Mutual Fund. Ideally the reasons would be creating a retirement fund or saving for children’s marriage or studies, buying a house or simply building wealth over a period of time. Keeping the goal in mind, one should decide the fund in which they want to invest. The fund thus decided upon should also be tax efficient. Else the purpose of investing one’s hard earned money, is nullified.

2) The time horizon or period of investment should be decided upon. Wrong analysis and assumptions in this regard do not help us in achieving the goals that we have in mind. The person should also decide the risk level that he/she is willing to take and what period of investment suits them best.

3) An asset allocation plan is the basis of a good investment. This plan shows exactly how much percentage of money the person is investing into ELSS, Balanced Funds, Gold etc. It is known that good planning helps us do work efficiently. Hence the same amount of planning is also required before investing.

4) Nowadays, there is a lot of awareness about various funds in the market, their fund managers, etc. Choosing the right fund is always important in investment. Though there is nothing called a Right Fund and a Wrong fund, as previous points stress upon, the purpose and duration of investment are detrimental in choosing a fund. Hence the right choice will always help the investor. The fund should be chosen after carefully studying the track record of the fund’s performance, company’s profile and other such factors.

5) After choosing a Fund, we should also decide the right “type” of fund we want to zero down on. For example, a person wants to invest into Equity funds, whereas within Equity funds itself there are different types viz., Pure Equity funds and Sector specific equity funds as well. Likewise, as many know, there are Midcap, Large cap, Small Cap funds which tend to different types of investments. Nowadays, Gold ETFs are much in vogue and I would say it is best to invest upto 10% if investment money into Gold (ornaments, coins) or ETFs.

Hence I would stress upon that whoever is sure of investing in Mutual funds should be equally sure of what type of fund they would want to go for. If they are not aware about a lot of these details, consulting a financial planner helps a lot.

In your view, what are the top 5 funds you would recommend for investors?

DSP Black Rock Equity fund and DSP Top 100 are the top performing Equity funds now in the market. Apart from these two, Reliance Growth Fund, Reliance Vision Fund and DSP Tiger Regular fund are also very good Equity funds. Amongst Balanced Funds, I would suggest DSP Black Rock Balanced Fund.

Debt funds have many sub-types within them viz., Liquid funds, Short term funds, Floating etc. They yield volatile returns and it is impossible to time the market and hence I feel that it is rather better to settle for Balanced funds, Fixed Deposits and PPF schemes.

Which ELSS funds would you recommend?

I recommend SBI Magnum Tax Gain Fund. It has been a very consistent fund.

How many fund types should a person have in his/her portfolio (Equity, Thematic, ELSS, Equity diversified, Debt funds etc)?

My view is – Maintain a SIMPLE portfolio. It is better to have less no.of funds in one’s portfolio than having too many and not knowing when to exit and how to manage. An ideal portfolio would have 2 or 3 Pure Equity Diversified Funds or ELSS funds, one Balanced fund and may also contain a Sector specific fund.

The asset allocation ratio would be 60% equity, 30% Debt and 10% Gold. For which type of person does he recommend this asset allocation in terms of Age/Scenario/Risk Tolerance

Mutual funds are just a vehicle to indirectly invest into Equity market and hence they are not any less riskier. This is not accurate, they greatly mitigate risk by spreading it to many equities though it is true that in India there are not that many equities to choose from. At the same time, one should not forget that most of these fund managers invest into the same equities and hence at times, it makes no difference to think of 100 different funds. Be careful and consult a financial planner before going in for sector specific funds.

All said and done, SIP is the best way to invest into MF. This system averages the rupee cost and doesn’t affect the investment going by the market volatility. If one has bulk money to invest, I would suggest they invest into a Balanced/Debt fund and design a Systematic Transfer Plan(STP) into the desired fund. This ensures their bulk money earns them interest while a portion of the money is getting invested into another fund.

If you have any queries on Mutual funds or investment related questions for Ashish, he may be contacted at ashisherry@hotmail.com. We hope you found this article informative.

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