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Investing in a New Fund Offer is not the best way to begin, unless the new fund has a unique investment proposition…

I had invested in HDFC long-term Equity and Franklin India Smaller Companies fund in 2006 and both the funds fared badly because of 2008. Now I want to switch; can you suggest what funds that I can switch to? I am looking at three SIPs for Rs 5,000 to invest in?

- Chandu

Fund Scheme  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
HDFC Long-term Equity Multi Cap *** 20.09 6.83
Franklin India Smaller Companies Mid & Small Cap ** 23.21 3.96
Return as on October 12, 2011, Rating as on September, 2011

You invested in both these funds during their NFO which is not the best way to start investing unless the new fund offering has a unique investment proposition. Moreover, both these funds belong to categories in which investments are risky and ideally not the funds to start investing in mutual funds. The impact of the investments is reflected in their performance, which is way below expectations and your intention to exit these funds is understandable. We suggest you start building a core portfolio made of large-cap funds such as DSPBR Top 100 or ICICI Prudential Focused Bluechip and large- and mid-cap funds such as HDFC Top 200 or Fidelity Equity which are all highly rated with a proven performance history. This investment will provide the stability to your portfolio and you should then add a mid- and small-cap fund to BSL Dividend Yield fund or IDFC Premier Equity which have higher risk and the potential for higher returns for overall portfolio growth. Continue investing regularly through SIPs and track the performance of your funds at least once a year to ascertain its progress towards your financial goal.

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