Mutual fund queries answered by Sridevi Ganesh CFPCM, SEBI Registered Investment Adviser, Chamomile Investment Consultants
While investing in mutual funds, ask three questions to yourself: (1) What is the purpose of this investment, (2) What is the expected return out of this investment, and (3) How long I can hold or When do I need this money?
If you do not have an answer to any of these 3 questions, do not invest. If you are young and want to hold it for a longer time, say 20 years or more than 7 years, you can choose equity funds. Again, if you want to look at the performance every year, then pure large cap or large and mid cap fund will be more suitable. If you do not worry about the year on year movement of NAV, then a multi cap or midcap fund will do for you. If you are a first time investor, try balanced funds. Mutual funds' return is not made while investing, it is made at the time of exit. Hence you should know when to exit.
You can invest in mutual funds in your grandchildren's name in India provided you comply with KYC and other related requirements. There are restrictions for US/CANADA NRI/OCI to invest in mutual funds in India. You need to check with the fund houses if they accept your investments. There are very few fund houses who accept investments from NRIs based out of US/CANADA. The investment has to be made only in rupee. You can invest in diversified equity mutual funds for the above mentioned time duration as these funds will generally be in addition to the funds planned by their parents. You can gift only up to Rs 50000/- in diversified equity schemes. There are some schemes where minors will be the sole unit holder for which the investment is not limited. If you opt for lock-in options, only the child can handle the investment after he/she turns 18. Parents cannot operate the account though they have to sign the forms and complete KYC requirements.
When you want to invest with a time horizon of 2 years for a purpose of some big expense at the end or before 2 years, you need to opt for recurring deposits only. This will give you definite return expectations for the forward looking period.
For your other query, my answer will be: Mutual funds are very simple products. MFs have products in a wide spectrum where one can select to match his/her goals, risk profile and tax status. Professional management, diversification across the glob, easy to manage, transparency and tax efficiency put this product in a favorable platter. Equity mutual funds, if properly selected and monitored, will be a wealth generating tool in the longer run.
Your portfolio is currently well diversified with banking and financials 25%, IT 11%, auto & related 12%, pharma 10% FMCG 9%, and rest in others approximately. It provides you good diversification and hence you can continue. You need to check if these schemes are beating their respective benchmarks consistently. Two funds have good downside protection and do reasonably well on the market up movement. One fund is relatively new and you need to give time before analysing the risk parameters. Nothing wrong in trying new funds, if you understand the risks clearly. This new fund has delivered good returns in the recent past. You need to keep an eye on the underperforming fund for a year and decide. But for these kind of equity schemes, 5 years is too short a period to realize the potential returns. An early start gives you the benefit of the power of compounding in the long run.