Expert advice

Aug 09, 2012,14.00 IST

Mix equity and fixed income plans to maximize returns

Instead of investing only in equity funds, it is best to choose a mix of equity and fixed income plans, suggests Lovaii Navlakhi of International Money Matters. According to him, it is very important to know the timeframe that an investor is looking at for investment and what kind of a target he has in mind. Once, that is clarified, depending on an individual's risk taking capacity, investment opportunities can be found, added Navlakhi.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Investor wants to invest Rs 25000 per month, how should he allocate his money? He has been investing since 2005 but, since last 3 years his equity-mutual fund portfolio has increased only by 2-3%.

A: It is right that people have lost money or not made really too much money in equity mutual funds in the last few years. I think it is all a question of what was the time horizon for investment and how much risk they could take. Most people look at mutual funds as the only vehicle to invest in equities.

But, I think mutual funds have a lot more to offer. There are hybrid schemes which have 75% equity, 25% debt. Some other conservative schemes with 85% debt and 15% equity and even fixed income products are also there. I think he has got equity funds only. He should definitely look at some hybrid funds.

Some of the names I could think of is something like HDFC balance fund which is more equity, less debt and may be another fund which is an MIP is ICICI monthly income plan which has more debt and less equity. He also needs to start building some investments in accruals that is fixed income products.

ICICI regular savings plan or Templeton India short-term income plan maybe useful. If he starts doing this, may be about Rs 10,000 of his Rs 25,000 can be put into such schemes and he can continue Rs 15,000 in may be ICICI focus blue-chip and HDFC midcap opportunities or even the HDFC top 200.

I think he has chosen good schemes so far. And you must not lose faith because I think you have gone through a phase where there has been a downturn. Not that the downturn is totally over, but if you were to look at it from today for the next 3-4 years, I think the general outlook is not so good but, it is upward. I think you should have faith and continue investing in systematic investment plans of equity funds.

Q: An investor wants to invest Rs 5,000 per month for a period of 5 years and his goal is to get Rs 20 lakh. How should he allocate his money?

A: Rs 5000 per month for 5 years may help him get to roughly Rs 6 lakh to Rs 8 lakh depending on the type of return he makes. If his target is Rs 20 lakh then he needs to either extend his time horizon to 10 years or he needs to invest Rs 10,000-12,000 a month which will help him meet his goals.

Since he has got 5 years to invest, what I would recommend a little mixture of equity and fixed income. So he can invest around Rs 3,000 in HDFC balanced fund and Rs 2000 in a Franklin India bluechip fund which is a large cap diversified equity fund. But, it is important to know what his time horizon is and what his target is. If he can change these, this is what I would recommend.

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