Here is how an FD investor can approach mutual funds

With the benchmark Nifty crossing 11,000 and the Sensex moving past 36,000, many investors who may have been investing in fixed deposits could be considering an entry into the markets for the first time, especially via mutual funds. Keeping in mind the current valuations and risk appetite of a first-time investor, four financial planners give their suggestions on how to build a mutual fund portfolio of Rs 10 lakh with a 3-year-plus horizon.

RENU POTHEN
HEAD OF RESEARCH, IFASTFINANCIAL

New investors in mutual funds should first assess their risk profile and time horizon. If the time horizon is less than 3 years, then we suggest investing in ultra short term and short term funds instead of equity. If the time horizon is more than 5 years, we suggest taking an exposure to equities with a 15% allocation to debt. Within equity, we recommend large-cap and multi-cap funds. These funds are less volatile that than the mid/small cap funds. Investors can initially park funds in liquid or ultra short term funds and then use the systematic transfer plans (STP) to gradually transfer their investment into the recommended equity funds.

Franklin India Ultra short bond (Rs 1.5 lakh)
3-year return: 9.13%
ICICI Pru Focused Bluechip Equity Fund (Rs 3 lakh)
3-year return: 11.5%
Kotak Select Focus (Rs 3 lakh)
3-year return: 13.35%
Axis Long Term Equity Fund (Rs 2.5 lakh)
3-year return: 12.44%

AMOL JOSHI
FOUNDER, PLAN RUPEE

For a first-timer, equity allocation should be kept conservative (also by considering his/her risk appetite) and an investor should have a time horizon of more than 3 years. Since these are surplus funds of the investor(not for daily needs), the investor can look at a 3-5 year time frame.

Franklin India Low Duration Fund, (Rs 4 lakh). A low duration fund would generate fixed deposit-plus returns with easy liquidity and indexation benefit post 3-year holding period
3-year return: 10.32%
ICICI Prudential Balanced Advantage Fund (Rs 2 lakh)
3-year return: 10.32%
HDFC Balanced Fund (Rs 2 lakh)
3-year return: 13.05%
Rs 2 lakh can be invested via a systematic transfer plan (STP) over six months into ABSL Frontline Equity.
3-year return: 11.01%

VIDYA BALA
HEAD OF RESEARCH, FUNDSINDIA.COM

Three important factors about MFs will provide comfort to investors: Superior returns then fixed deposits, two, tax efficiency and three, limited volatility. Towards this end, a 30-40% allocation in equities is the maximum he/she can go for three years. Funds with accrual strategy will provide sufficient liquidity and steady returns. A three-year-plus holding period will provide capital gains indexation benefit thus making the investment far more tax efficient.

HDFC Balanced Fund (G) (Rs 4 lakh)
3-year return 13.05%
ICICI Prudential Flexible Income Plan (Rs 2 lakh)
3-year return: 8.23%
HDFC Short Term Opportunities (Rs 2 lakh)
3-year return 8%
DSP BR Income Opportunities (Rs 2 lakh)
3-year return 8.59%

RUPESH BHANSALI
HEAD (DISTRIBUTION), GEPL CAPITAL

We would recommend a 35% allocation to accrual strategy in debt funds, 50% to equity savings funds and 15% to dynamic equity funds. In an accrual strategy, the fund manager usually buys and holds bonds in the portfolio, hence there is only mark to market loss and no actual loss until the bonds are sold from the portfolio . In equity savings fund, the fund predominately holds 70-80% into arbitrage and debt segment which from a risk reward perspective is favorable for a conservative investor. The rest is held as open equity position which is around 23-30%. In dynamic equity funds the category follows a dynamic allocation strategy. Hence for investors looking at more equity participation can look at funds as they benefit from market volatility.

UTI Income Opportunity Fund (Rs 3.5 lakh)
3-year return: 8.45%
Reliance Equity Saving Fund (Rs 2.5 lakh)
1-year return: 17.31%
Kotak Equity Savings Fund (Rs 2.5 lakh)
3-year return: 8.64%
ICICI Pru Balanced Advantage Fund (Rs 1.25 lakh)
3-year return: 10.32%
Principal Smart Equity Fund (Rs 1.25 lakh)
3-year return: 6.22%