Have you invested in good mutual funds?

The mutual funds I hold are:

HDFC Equity – Rs 5,000 (lump sum)
Fidelity Special Situations Fund – Rs 5,000 (lump sum)
HDFC Long Term Advantage Fund – Rs 48,000 (Rs 4,000/month)
Fidelity Tax Advantage Fund – Rs 24,000 (Rs 2,000/month)

What is your opinion of my fund selection?
Must I increase the investment limit?
If yes, do you advice another fund or stick with these?

- Leo Mathew

It is best to invest in mutual funds via the Systematic Investment Planning route.

As far as your fund selection is concerned, two of your funds -- HDFC Equity and HDFC Long Term Advantage -- are among the best of the funds in their respective categories of diversified equity funds and tax-saving funds.

HDFC Equity is one of the most consistent and versatile diversified equity funds available. It is an apt choice to play a lead role in your portfolio. Going forward, you can consider investing a higher proportion of your overall portfolio to this fund.

As a tax-saving investment, HDFC Long Term Advantage is a suitable choice.

However, the Fidelity funds are quite young and have yet to prove their mettle in testing times. Therefore, we would recommend you to restrict your investments in these funds and choose from the ones that have a long term record of consistent and good performance.

If you want to pick another fund, refer to our list of five and four star funds our Web site. Do read 5 great mutual funds.

As to the amount of investment, determine how much you can spare each month to invest for the long-term. Remember, equity investment is for the long term.

Money that you will not need for at least the next few years can be channelised to equity funds.

• How have new mutual funds fared?

I invest via a Systematic Investment Plan. Here are the amounts in put in every month.

Kotak K-30: Rs  2,000
Sundaram MidCap: Rs 2,000
Franklin Flexi Cap: Rs 2,000

I have an investment horizon of five years.
Is my portfolio well diversified to mitigate any risks or do I have to make some changes?

- Nikunj Shah

You are smart by investing consistently via a SIP.

You have a nice mix of funds in your portfolio.

Sundaram Select Midcap, as the name suggests, is a mid-cap fund with a sterling performance record and is currently rated as a five-star fund. As mentioned in the above answer we give funds a star rating depending on their return.

Kotak 30 maintains a cohesive portfolio of about 30 stocks and has always maintained a large-cap bias. This fund has an above-average performance record and figures in our list of four-star funds.

Franklin India Flexi Cap is a young fund with a flexibility to invest across market capitalisations. But it has done exceedingly well in its 'just over a year of performance history' so far. As on May 26, 2006, its one-year returns stood at 70.96%, far ahead of the average return of other funds in the category -- 57%.

On an overall basis, your portfolio looks quite well-diversified. Three fund houses are managing your money. Over half of your money is invested in large-cap stocks at the moment and sectors like diversified, engineering and automobiles account for the highest in your portfolio. No individual stock accounts for more than 5% of your investments. Therefore, things look to be in place.

However, since your investment horizon is only five years, you would be required to start slowing increasing the debt component in your portfolio in another two-and-a-half to three years time. Else, if you want to sell your entire investment at the end of five years and the markets slump, you will be in a tough spot.

Illustration: Dominic Xavier