1. I am thinking of entering mutual funds (growth). Could you suggest some funds which can give me good returns - K.Natesh

Dear Natesh, I will not be able to name funds, but would rather you consult a good financial advisor for this. Remember that you need to be careful in choosing a good advisor. A good advisor is one who – 

a) takes into account your long term needs, your risk appetite

b) is willing to review your portfolio every year

c) advises lower churn- meaning he does not recommend constant buying and selling of mutual funds

d) reveals to you the compensation/commissions that he gets from the mutual funds that he recommends. (If the advisor is advising based on the commission he gets, then the advisor may not be a suitable advisor.)

However, with respect to fund selection, some broad suggestions:

a) Avoid sector funds - those that concentrate on specific industries

b) The underlying portfolio (meaning the stocks that are held in the portfolio) should not have significant overlap. (Eg. If you own five funds and all the five funds own stock A, then your exposure to stock A may become significant amount of your portfolio.) This will add unnecessary risk to your portfolio. 

c) The other alternative is to choose funds on your own without any help from advisors. (Refer to our note on – How to choose a Mutual Fund (Q2).) 

Investing directly in shares has its own risks to be considered. Stocks are slightly more risky than Mutual funds. Stock selection also requires careful consideration and requires considerable amounts of time and skill to recognize the stocks in which you should put in your savings, and the time you need to stay invested / exit from a particular stock etc. All this needs specialized knowledge and lots of experience in investing. Therefore it seems more prudent to invest in a diversified mutual fund.

So opting for a Mutual Fund is a better option, but remember to choose your mutual fund well before investing.      

Well, you could definitely invest your complete corpus into mutual funds, but remember the golden rule – DIVERSIFY!

Divide your portfolio substantially between Equity, Liquid and Gold. (Try our Asset Allocation tool to see how you should diversify your portfolio.)

Dear Mr. Goyal, 

The good thing is that you still have a long term horizon to invest and meet your needs.

However you should consider going to a proper financial planner to help you to meet your goals. While choosing an advisor please look at their experience. Also be willing to pay their fees after evaluating their service offerings. 

Traditional distributors (not all, but quite a few of them) have only adviced based on the commission they received from the mutual funds. Hence you may not have got the best advice.

I cannot recommend specific fund names, but I would like to share a few pointers:

i) Plan for the long-term 

ii) Stick to a plan, but keep reviewing atleast once a year

iii) Choose funds that will help you meet your goal

iv) Invest in diversified equity funds, instead of sectoral funds

v) Do not churn

vi) Diversify between equity, liquid and gold, assuming that you have met your property needs. 

Hence if the NFOs that you invested are not diversified equity funds, then it may make sense to switch out of it and invest in a diversified equity fund after following the broad guidelines mentioned above.

You might want to try our asset allocation tool to help you understand better.