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I want to invest in few MF schemes for Rs 20000 each and hold them for 20 years

I am 22. I wanted to invest Rs.20000/- in each mutual fund. My choices are 1) SBI Pharma Fund, 2) DSP Black Rock Micro Cap Fund, 3) Reliance Small Cap Fund, 4)franklin Build India Fund, 5) UTI Transport and Logistics Fund. Is my choices are suitable for me? Looking forward to Hold them for 20 years. Please suggest me in details?

Mar 31, 2016 by karthik, Visakhapatnam  |   Mutual Fund

Firstly, you should be congratulated for planning mutual fund investments at a young age. In the long term, you will hopefully be very well rewarded for your decision to start investing early in your career. All the mutual fund schemes chosen by you are good funds. However, you should note that out of the 5 funds chosen by you 3 are thematic funds. Thematic funds invest in only a few sectors, which implies that they are exposed to sector specific risks or theme specific risks in addition to market risks as opposed to a diversified equity funds which invests across sectors and are therefore primarily exposed to market risks. This is not to say that, thematic funds are not good investments. If you understand the theme and the sectors well, you can get excellent returns from these funds. On the other hand, if you are an inexperienced investor it is more advisable to invest in diversified equity funds.

As far the themes / sectors in your fund selection is concerned, you will have concentrated exposure to Pharmaceuticals (through SBI Pharma Fund), Infrastructure (through Franklin Build India Fund) and Automobiles and Auto Ancillaries (through UTI Transportation and Logistics Fund). If you want to invest in these funds, you should make sure that you understand these sectors well. All three themes present good investment opportunities now. Pharmaceutical sector is a defensive sector and does well when cyclical sectors underperforms. Also, over the past three months or so, Pharma stocks have seen sharp cuts due to US FDA issues. But the correction in Pharma stocks presents great long term value opportunities, as per market experts. The Government made considerable investments in Infrastructure in 2015 – 2016. In this Budget again, there has been large allocations to infrastructure development, particularly rural infrastructure. The automotive sector will benefit from the cyclical recovery of the Indian economy and also from a benign interest rate environment, which the Reserve Bank of India is committed to. As such, all the three thematic funds chosen by you have the potential to give excellent returns in the long term. If you invest in these funds, you should monitor the performance of these funds on a regular basis and make appropriate adjustments if required.

DSP BlackRock Microcap Fund and Reliance Small Cap Fund are two best small and midcap funds. Over a long investment horizon, which you have, small and midcap funds have the potential to give very high returns and outperform other equity fund categories. As per good mutual fund investment practices, large cap and diversified equity funds should also form the core of your investment portfolio. Therefore, at a later stage when you make further investments, you should add large cap and diversified equity funds to your investment portfolio.

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