The Mutual Fund Show: Here's Your Five-Year Investment Strategy

As Prime Minister Narendra Modi is set to be sworn in for a third stint in office, it’s time to plan your investments over the next five years.  

Economic matters will rank high among the priorities of the upcoming government as it was a consistent theme in the National Democratic Alliance's campaign, according to Arnav Pandya, founder of Moneyeduschool.

“A lot of steps will have to be taken in order to lift the economy and get it to an even higher plane of growth, which means focusing on various infrastructure and area-specific growth,” he said on NDTV Profit.

Dhirendra Kumar, founder and CEO of Value Research, urged investors to diversify. "Choose diversified equity funds: invest in an index fund, flexi-cap fund, multicap fund, value fund or the tax saving fund.”

“Normally, thematic funds over the long run prove to be a disaster,” he said.

Pandya concurred. “Diversification of your money is the only insurance against all kinds of uncertain things that happen.”

“When choosing funds, consider the weightages in your portfolio,” he said. “If you have a high exposure to certain funds, it may be time to trim them and diversify your investments.”

Pandya said one must consider these factors while planning mutual fund investments over the next five years.

• There is continuity in government and this means stability. Investors must utilise this for their financial planning.

• Stick to your financial plan and keep the investments going.

• There will be several corrections along the way.

• The volatility is immaterial for a mutual fund investor.

• One way to reduce risk is to not take concentrated bets.

• Still time to rebalance portfolio, reduce small and mid-cap exposure.

• Be cautious with thematic funds.

Query 1: I want to invest Rs 60 lakh in mutual funds for the next 3-5 years. Please share fund recommendations and investment strategy.

Name: Bharti Gupta I Age: 56 years

Arnav Pandya: If you plan to extend it over 2-3 years, by the end of the investment period, it would be advisable to opt for a hybrid fund and spread the investment over 5-6 months to average out the costs. Considering the time frame of 3-5 years, a Balanced Advantage Fund would be a suitable option.

Query 2: I want to initiate a Rs 10,000 SIP and I'm aiming for Rs 2-3 crore returns. As an aggressive investor, what funds do you suggest?

Name: Rahul I Age: 35 years

Arnav Pandya: If you want such high returns, you have to increase your investment amount and invest at least Rs 20,000. Invest in equity funds. A mixture of large-, mid- and small-cap funds can be chosen.

Query 3: I would like to switch my SBI Contra Fund and SBI Focused Fund to some better performing funds. What funds can you recommend?

Name: Rajaram I Age: 64 years

Arnav Pandya: You can switch to an HDFC Focus Fund if you want to reduce the risk itself.