Should I invest in a single scheme or diversify my investments?

I am a bachelor, working with an IT company. I have a surplus of Rs 5,000 to invest in mutual funds with an objective of wealth creation for a period of 10-15 years. Please suggest whether I should choose a single fund or diversify my investments into a portfolio. Which mutual funds should I pick to invest and whether I should invest in an ongoing mutual fund or should I wait for a new scheme to come up? I am ready to take some risk. Considering that, which type of funds are better: equity, debt or hybrid?
Last month I received some freelancing income also. Should I put in a fixed deposit or PPF or should I go for lumpsum plan in mutual funds (which scheme)? Actually, I am new to stock markets. I want to know whether investment in mutual funds necessarily require a demat account or can I enjoy benefit of open-ended fund without a demat account?
--Vineet Jain

Deepali Sen, Founder, Srujan Financial Advisers, responds:

You have packed a lot of questions in this short paragraph. Let me try and address all of them (not necessarily in the order of asking).

I am assuming that this surplus of Rs 5,000 per month will be generated on an ongoing basis.

While planning of investing your surplus monies, the first few things to be kept in mind are:

If you have a dependant, then please take a term plan (life insurance). The cover should be enough to ensure that your financial responsibilities towards them are not compromised.
Create an emergency fund by investing in liquid/ultra short schemes of mutual funds (Aditya Birla Sun Life Savings Fund or ICICI Prudential Flexible Income). Keep aside a sum equal to three months' expenses for this purpose and keep replenishing this fund after it gets used.
List down your future goals, responsibilities, duties and dreams as ST (Short Term), MT (Medium term) or LT (Long Term).
ST goals are those which will require money in a period less than two years (like emergency funds or money needed for a bike purchase in an year), MT goals will need money in two to seven years (like funds needed for marriage) and LT goals will call for money in a period in excess of seven years (like house purchase or retirement).
Money needed for ST goals should be invested in liquid/ultra short mutual fund schemes (as mentioned above for emergency funds).
Money for MT goals can get invested in bond or income MFs (like Franklin India Income Builder Account, HDFC Medium Term Opportunities Fund, ICICI Prudential Banking & PSU Debt Fund)
Money meant for LT goals should get invested in diversified equity funds (largecap and multicap to begin with). Few examples are: ICICI Prudential Focused Bluechip Fund (largecap), Aditya Birla Sun Life Frontline Equity Fund (largecap) and SBI Magnum Multicap Fund (multicap fund).

The investments should be goal-based, the tenure of the need will determine the asset class (with its associated risks). Liquid or ultra short-term funds are subject to low level of risk/volatility. Income/Bond funds are subject to medium level of risk/volatility. Equity funds face the highest levels of risk which gets mitigated by staying invested for long period (at least in excess of seven years). Investments in equities is a must if you want to stay ahead of inflation.

It is better to invest in ongoing funds over new ones, as ongoing funds have a track record of performance, risk data, portfolio etc, to examine and evaluate.

Mutual funds make more sense than FDs as they are liquid, professionally managed, well diversified, tax efficient and their portfolio is well diversified. Also, equity MFs can help you beat inflation.

You don't need a demat account to invest in mutual funds.