Short term investment horizon? Refrain from equity MFs

Investors with a short term horizon should refrain from investing in equity mutual funds as they attract exit load and given the current volatility in the market, advises Pankaj Mathpal of Optima Money Managers. Instead, one should opt for recurring deposit in any bank which will fetch 8% returns per annum.

Below is the edited transcript of Mathpal’s interview with CNBC-TV18. Also watch the accompanying video. Q: An investor can invest Rs 1000 per month. He wants good returns in a time period of 1-2 years. How should he allocate the money? A: If you want to invest only for one year, I will not recommend you investing in equity mutual fund nor in debt mutual fund because there will be exit load applicable on the mutual funds if you redeem your units within one year from the date of allotment. Equities being volatile I will not recommend for one year. If your investment horizon is long say for 4-5 years then definitely you can invest in equity oriented mutual fund but for a period of one year, I suggest you should invest in recurring deposit of banks. Banks are offering interest rate of 8% right now so if you invest say Rs 10,000 per month you can accumulate around Rs 1.20 lakh in one year. Q: When Nifty is quite low with a PE of lesser than 14, I plan to invest in equities or in some mutual funds. When the PE goes up around 20 then I plan to sell stocks or mutual funds. Will that approach be good? A: Since you want to invest regularly every month, if you want to invest a lump sum amount today and you feel that market will go up from this level, you can invest a lump sum amount and you can exit when the markets are up. There is different choice provided. But if you want to make wealth through regular investment in that case I will not suggest you to go in equity mutual fund for one year horizon. Or if you are investing for one year and then you remain invested there for long horizon that can also be once choice but because your question is like you want to invest every month only for one year or two year so I don’t suggest that is a good time horizon for equity investment. Q: An investor can invest Rs 5000 per month. He has invested in ICICI and Reliance Mutual Fund for the last four years. He has a time period of five years and my goal is Rs 50 lakh. How should he allocate the money? A: From your existing mutual fund portfolio, I will recommend you to redeem all units under your Reliance Diversified Power Sector fund. The redemption money can be invested in your existing well diversified equity mutual fund. Rest other funds are good. You can remain invested with those funds for a long horizon. For your Rs 5000 per month investment, I recommend you Rs 3000 you should invest in HDFC Equity Fund and Rs 2000 per month you can invest in Reliance Gold Saving Fund. If you invest Rs 5000 per month, returns are not assured in mutual funds still considering 12% per annum return you can expect around Rs 4 lakh in five years with your Rs 5000. Along with that, your existing portfolio can give you good returns.