Decide On Time Horizon

Q. I am a 26-year-old working with a call centre and drawing a net salary of about Rs 24,000 p.m. I do not have any knowledge about which mutual fund to invest. There are so many mutual fund schemes in the market which are really confusing. I would like to invest about Rs 2 lakh in 5-10 MF schemes. Please guide me which personal factors should I take into consideration while investing and how to decide which mutual funds are good for investing.

- Shashank Desai, Vadodara, on email.

A. Among the foremost factors to consider is the time horizon of your investment. Longer the time frame, more the risk that you can take and enjoy potentially higher gains. Time matters, since the riskier classes such as equity can be very unpredictable in shorter time periods. Comfortably long is 5 years and above, in my view. For predictable but lower gains in shorter time periods, liquid plus funds and short term income plans are appropriate. Since their dividends are tax free, these funds are a good alternatives to bank deposits.
Depending on how much fluctuation one can tolerate, and time horizon, a mix of equity funds (risk bearing) and short term funds (low risk) can be arrived at. Further, use the opportunity to start a regular saving habit, by saving a fixed sum every month in mutual funds (Systematic Investment Plan).
The end use of these savings could be to fund yourself the margin required for a home loan or higher education or any goal of your choice!
In the category of liquid plus and short term plans, you could choose from ICICI Prudential Short Term Plan, HDFC Short Term Plan or their liquid plus funds. In the category of equity funds, you may choose from DSP Blackrock Top 100 Fund, Franklin Prima Plus, HDFC Equity Fund and HDFC Growth Fund. Two in each category is sufficient. In equity funds, it is useful to select diversified funds, which have stocks from all sectors of industry and have a record of consistent performance over long periods.