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Diversify First

Invest in sectoral or thematic funds only when you have a well-diversified equity portfolio in place…

I have decided to invest Rs 10,000 in a long term equity fund for a minimum of 3 years. Since I do not have a demat account I am not in a position to invest in gold ETF. I have selected Sundaram Equity Plus (NFO), HDFC Prudence and Reliance Banking fund. Is this the right approach?
- B Jayaram

You come across as a new investor. While your eagerness to invest is commendable, you need to focus on what you invest in. For a new investor it will be a good idea to start with a SIP in a balanced fund. Once you experience this investing over six months you will understand the way investing works and then move into a large-cap fund and build a portfolio from there on. You can consider investing in HDFC Prudence or Reliance Regular Savings Balanced Fund. Both are highly rated funds with a proven track record and performance history to invest in.

Sundaram Equity Plus, is a new fund offering which will invest 65 per cent in equity and up to 35 per cent in gold ETFs. While the idea to mix equity and gold in a fund is unique, you may be better of investing in gold ETF and have a standalone equity portfolio. As for the Reliance Banking Fund, it is a sector fund with a narrow mandate and is fraught with risks that you should be aware of. These are funds that you should explore only when you have a well diversified equity fund portfolio and are looking at adding sector and thematic funds to balance the overall portfolio allocation.

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