Stagger lump sum investment to average out mkt volatility

She further added, “If you have a long-term investment horizon and your primary goal is your children’s education and you are not looking to play the stock market for entertainment, you should go with mutual funds with an SIP model.”

Below is the edited transcript of her interview on CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest Rs 50,000 as lump sum. What’s the advice that you would give him?

A: His goal is a little aggressive given the kind of money he wants to invest. So if he is looking to meet that goal over the time horizon, he needs to put in a larger lump sum. As far as the lump sum goes, I would split it 70-30 between equities and gold. In equities, I would do about half the amount Rs 25,000-30,000 in a large cap fund like Franklin India Blue Chip. The balance could be invested in a good midcap fund like IDFC Premier and the remainder 30% in a good gold ETF or gold fund like the Reliance or HDFC Gold Fund.

Q: An investor can invest Rs 10 lakh as lump sum. His goal is to achieve Rs 40 lakh for his daughter’s education. How should he allocate the money?

A: Firstly, the goal he has and the amount he is looking to invest is very reasonable. So the good news is he can be fairly conservative. He doesn’t have to be too aggressive with his investments. On his question about stocks versus mutual funds, I always recommend that if you have a long-term investment horizon and your primary goal is something like your daughter’s education and you are not looking to play the stock market for entertainment, you should go with mutual funds with an SIP model.

Even if you have a lump sum amount to invest, you should stagger it over 24 months to average out the volatility in the markets. As far as the SIPs go, he should consolidate them into two funds in the equity space or at the most three, because he has too many funds. So he can keep the HDFC Equity or HDFC Top 200 as his large cap fund. He can add one midcap fund which is IDFC Premier Equity. Everything else should be pared down into these two because having too many funds serves him no purpose. He has got enough diversification by just investing in mutual funds. I would also consider a gold allocation of about 10-20% in that SIP.

Q: Would you advise any debt fund?

A: ICICI Short Term Opportunities or the Franklin Short Term Opportunities. This is a good time to do short-term funds. He could look into an allocation that is about 40% in equities, 30% in debt, 30% in gold. He can tweak it around equities depending on how conservative he wants to be.

Q: He has Sundaram Midcap; would you still prefer IDFC Midcap, not Sundaram?

A: Yes, I would strongly urge him to move from Sundaram Midcap to IDFC.