Mutual Fund

Rajesh Sinha: I am investing ` 10,000 a month via SIP in four mutual funds. I want to increase the amount by ` 2,000. Should I select a new fund or increase the investment amount in the existing funds? In how many funds should one invest?

Dhaval Kapadia, Director, Portfolio Specialist, at Morningstar Investment Adviser India, replies:

One of the key determinants of a portfolio’s long- term performance, in terms of risk and returns, is its asset allocation, or the mix of equity, debt, gold and so on, and their weights within the portfolio. Suitable asset allocation is typically based on one’s investment horizon, risk appetite and investment goals. As each asset type has different risk- return characteristics, combining them helps diversify portfolio risks. These assets can be bifurcated further; for example, equity funds could be largely classified as large- cap, mid- cap, small- cap and multicap, all of which have different risk- return characteristics. Hence, you can invest in funds from each category, but the proportion will depend upon your risk profile and investment time horizon. Debt funds can also be added to your portfolio to harness the benefits of diversification further.