Investing In Mutual Funds

Q. I have a fund of  Rs 3 lakh and want to invest in mutual funds. Please advice me which funds are the best and how much I should allocate in those funds.

- Bhowmick Raj, on email

A. Bhowmick, what is best for me may not be the best for you! As is often said, one man’s medicine is another man’s poison. Unless both of us are on the same plane of understanding, I cannot be sure of what is best for you. The most important factors are time horizon and risk appetite. A portfolio constructed for a long time horizon (3 to 5 years and above) would be markedly different from a short or medium-term horizon. What does well over a long term may not do as well in shorter periods, as these growth paths are not linear. Equity funds for example could do nothing for a few months or years before spurting and making up for all the lost time; or else they may fall and lose value before they recover. For recovery to happen, time is of the essence. If one does not have the patience for these long dances with the markets or simply are going to need the money earlier, then one should be investing in steady instruments like bond funds or deposits; or a mix of the two (equity and bonds). Each of the categories will have ‘best’ funds. Which is best for you? Please decide on your time horizon for the answer.