I have a lump sum of Rs 5 crore to invest for long term. In how many mutual fund schemes should I invest? Also, what should be the time horizon over which I should spread the whole investment?
-Siddharth
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I think the second part of the question is more important. Rs 5 crore is a very relative thing. If it happens to be your two years income, then spread it over next one year. But if this Rs 5 crore happens to be your lifetime savings, then spreading it equally over a three-year period will be decent. You will be able to capture a full market cycle over a period of three years. This helps to eliminate the possibility of catching a market high, which is very important.
Coming to your first question, investing in two to three balanced funds (aggressive hybrid) or multicap funds will do the job. The advantage of a balanced fund is that it will be automatically rebalanced without the intervention of the investor. Balanced funds typically ensure a 70:30 equity and fixed income allocation. Also, rebalancing happens at the fund level so you don't have to do anything else. Multicap fund will be little more volatile than balanced fund. But it can potentially give more return.
Then there is a third way of building a portfolio which is to have two multicap funds, one mid-cap and one small cap fund. This composition of funds will get you slightly larger perspective. This portfolio will become more aggressive when markets fall but in a rising market this portfolio, over a five to seven year period will potentially give reasonably high returns. But such a portfolio is advisable only for investors who have experience in market-linked investments for, at least, three years, because for those who don't, it is very hard to really absorb the shocks that the market gets with its rewards.