What kind of returns can mutual funds give to those who want to invest for the long term?

Are sector-specific funds like the infrastructure fund, technology fund et al prone to higher risks? Are balanced funds meant for the long term?

What could possibly constitute an ideal equity linked saving scheme, ELSS, portfolio?

Should you go for a debt fund, fixed maturity plan or a bank fixed deposit in the current interest rate scenario?

Under what conditions should you exit your mutual fund portfolio?

What is the benchmark to judge a mutual fund's performance?

In a chat with readers on May 10, Get Ahead mutual fund expert T Srikanth Bhagavat answered these and other questions asked by mutual fund investors.

For those of you who missed the chat, here is the transcript.

Part II -- Unable to decide which mutual fund to invest in?

tejasvi asked, Sir, I have just started a SIP in HSBC India opportunity and SBI Global. Are these schemes fine and how long should I carry on with them?

Srikanth Bhagavat answers,  Both the schemes are on the aggressive side. Include large caps or blends such as Prima Plus or HDFC Equity in your portfolio.

Investor asked, Dear Sir, I have made one time investment in Magnum Global, HDFC Equity Fund, Reliance NRI Equity & Tata Equity Managment Fund (NFO). Are these good funds and how much return can I except after 20 to 25 years?

Srikanth Bhagavat answers, The choice is largely alright. Over a 20-year period, one can expect an average growth of at least 15 per cent per annum.

Investor asked, Dear Sir, I visited China and found the only difference between India and China is Infrastruture. So want to invest in Tata / ICICI Infrastructure Fund. Should I invest through SIP? If yes, then for how long? OR one-time investment for about 20 to 25 years period time. I have SIP in Sundaram BNP Select Mid Cap Fund which will expire in June 2008. Do you want me to extend it? I have taken this scheme for a 2-year period.

Srikanth Bhagavat answers, ICICI Infra is a better performer. Be aware that sector specific funds are always prone to higher risks, since their fortunes are linked to only one industry sector. Hence be prepared for a higher degree of volatility. Generally, you could restrict your sector fund exposure to about 10 per cent of the equity portfolio.

aa asked, What do you think about Reliance Growth Fund?

Srikanth Bhagavat answers, It is a mid cap oriented scheme, which has been in the top quartile of performers. You can continue to invest there.

kumar asked, How can you judge a mutual fund as the best mutual fund?

Srikanth Bhagavat answers, We use the Sharpe Ratio (Risk adjusted returns) as one of the best indicators.

dj asked, Hi, I am planning to invest in following MFs next month: HDFC Equity Fund (Growth), HDFC Prudence Fund (G), ICICI Pru Growth (G), Reliance Growth Fund (G), Magnum Balanced Fund (G), Magnum Contra Fund (G), and Magnum Global Fund (G). Please suugest if the picks are good enough? Are Balanced Funds for the long-term?

Srikanth Bhagavat answers, The balanced funds have a high quantum of equity -- 70 per cent or so. I see no point in investing there, if you want to safegaurd your money. Instead, choose pure equity funds and/ or pure bond funds. DSP ML Equity or Prima Plus is a better option than Pru Growth in the category. If you want higher risks, choose higher proportion of Reliance Growth and Contra.

avnip asked, Hi Srikanth, I would like to park my money for the short-term (around a year). Which debt fund would you suggest? What are the major differences between the various types of debt funds available in the market today. Should I go for a debt fund, fixed maturity plan, FMP, or a bank fixed deposit in the current interest rate scenario?

Srikanth Bhagavat answers, For a year, FMP is best. Slightly higher risk profile is Arbitrage funds of SBI and Pru but with the possibilty of higher returns. Last 90 days returns from it are in the range of 11 per cent per annum.

pkbarua asked, Pls suggest an ideal ELSS portfolio and equity divesified portfolio for the medium to long-term. I was planning to sell my past holdings at near the yearly high. Please advice.

Srikanth Bhagavat answers, Most of the ELSS have a mid cap bias at the moment. The best ELSS are HDFC Tax Saver and Magnum Tax Saver. A good diversified equity portfolio can have about 20 per cent mid cap stocks (Sundaram Select Mid cap/Reliance Growth); Upto 10 per cent Sector Funds (Relaince Power/Pru Infra); the rest in large cap bias and value funds (HDFC Equity/Prima Plus/Franklin Bluechip/Pru Dynamic/ Templeton NIdai Growth Fund).

abcd asked, What is the Outlook for HDFC (Tax Saver) Long Term Advantage Fund from investment horizon of 20 years?

Srikanth Bhagavat answers, Excellent. Keep the SIP going on!

Ujjwal asked, Sir, how are Reliance Growth and ICICI Pru Dynamic funds? Is it a right decision to invest in these two funds at this time in the market?

Srikanth Bhagavat answers, Since Reliance Growth is a mid cap oriented fund it has higher volatility. But the potential for higher returns is higher too. Pru Dynamic has also done well, as an actively managed fund which is opportunistic in nature.

Investing in one shot at this time is not advisable, unless you are the punter variety! A few installments is always SAFER (This being the keyword).

Partho asked, how safe it is to invest in a NFO?

Srikanth Bhagavat answers, Unless the track record of the asset management company, AMC, is good and proven, it is not recommended.

vinu asked, I have invested in Rs 20,000 in Reliance Diversified MF, Rs 10,000 in ICICI Dynamic, Rs 10,000 in SBI Global, Rs 10,000 in Sundaram Mid Cap, and a SIP of SBI Contra fund? Is it a good combination with a 3- 5-year time horizon? Tell me some good combination of mutual funds?

Srikanth Bhagavat answers, It is an aggressive portfolio, since it is more in the small and mid cap space and also includes sector funds. If you are the aggressive sort, this is ok. If you want to moderate it, add Prima PLus/DSPML Equity/HDFC Equity to your portfolio.

Rajsekar asked, How would you rate Fidelity AMC?

Srikanth Bhagavat answers, An AMC with a good track record in the USA and now in India, too.

Jeet asked, Dear Sir, at present levels what will you advise investors who have doubled their assets. Further investment or taking defensive positions?

Srikanth Bhagavat answers, Exit if:

1) You need the money.

2) Your fund is doing badly.

 3) Your goal is met.

Else it is better to stay invested. You see, if you are a long-term investor, the money needs to continue to grow. Exiting may take away the possibilty of continued growth. Timing the market for re-entry is extremely difficult.

Vinay asked, Sir what are the funds to watch for in the year 2007?

Srikanth Bhagavat answers, Difficult to make one year prediction in the stock market. Since our economy is doing well, the long term is bound to do well. There is a valuation gap between large and mid cap now. Investing in the mid cap sector could be advantageous.

Part II -- Unable to decide which mutual fund to invest in?

T Srikanth Bhagavat is the Managing Director of Hexagon Capital Advisors Pvt Ltd. He has been in the mutual fund industry for more than a decade now.