I want to start investing in mutual funds via SIPs. What should one consider before investing and what is the process to follow?

Naveen Kukreja CEO and Co-founder, Paisabazaar.com replies: Investing in mutual funds should be based on your financial goals-saving for vacation, accumulating money for child’s wedding and higher education, your retirement, etc. Identifying goals helps determine the investment horizon, which, in turn, helps select suitable schemes based on your risk appetite and liquidity requirement. If your investment horizon is less than three years, you may consider investing entirely in debt funds or, if you have a higher risk appetite, you may invest 80% in debt and 20% in equity funds. For an investment horizon of 3-5 years, balanced mutual funds-that invest 70% in equity and 30% in debt- are suitable. If investment tenure is more than five years, you can consider equity funds or opt for a 90%-10% equity-debt portfolio. Since you are new to mutual funds, you may consider investing through online financial marketplaces as they offer personalised and automated advisory services, assist in building the right portfolio, provide market insights and offer fund recommendations as well.

I am a retired engineer earning a monthly pension of Rs 45,000. The money is enough to meet my monthly expenses. I also have Rs 50 lakh in bank savings and FDs. I want to invest this sum in mutual funds for 3-5 years. Please advise.

Naveen Kukreja Co-founder and CEO, Paisabazaar.com replies: Given the current market volatility and your time horizon, you should exercise caution and take a conservative approach to your investments. You may invest the sum equally among equity savings and balanced advantage funds. Equity savings funds hold around 30% of their assets in equities, at least 10% in debt instruments and the rest in equity derivatives for exploiting arbitrage opportunities. This allows them to generate stable returns while retaining the tax efficiency of equity investments. Balanced advantage funds can freely alter their exposure to equities and debt instruments according to changing market conditions. Hence, these funds are best suited to make the most from market volatility. You may consider ICICI Prudential Equity Savings, Edelweiss Equity Savings and Kotak Equity Savings for your investment in the equity savings category. For your investments in the balanced advantage category, SBI Dynamic Asset Allocation Fund, ICICI Prudential Balanced Advantage and HDFC Balanced Advantage are good options. Investing in the direct plans of the chosen funds will help generate higher returns compared to their regular plans.

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