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When you look at returns of a mutual fund, you need to look at the market as well. Equity markets have been flat over 2022 and have been correcting over the past few months as well. This reflects in fund performance as well; an equity fund can hardly deliver outstanding returns when stocks are going through a sharp correction. To provide context, a SIP in the Nifty 50 index in the same period as your SIP would have delivered a 2.2% return. A SIP in the wide-market Nifty 500 index would have returned 0.75%.

Stock market corrections and volatility are par for the course; for every downward market phase there will also be a recovery. The risk in equity investing lies in this volatility and is something you need to be willing to hold investments through. So as long as your fund is a quality long-term performer and beats its benchmark index, you should continue to invest in it.

To invest in equity funds, you need to have at least a 5-7 year timeframe and be prepared for losses or low returns in that time. SIPs in correcting markets are very useful in investing when prices are low – bringing down your costs and therefore improving returns when markets recover.

1. Navi Nifty 50 Rs 3000

2. Mirae Asset Tax Saver – Rs 4000

3. Axis Small Cap – Rs 3000

4. Quant Tax Plan - Rs 2000

5. SBI Focused Equity - Rs 1000

If you intend to use the funds to construct a house in the next 2-3 years, they are not suitable unless you have already been investing in them for at least 3-4 years. For one, equity funds are best used for medium to long-term goals only as they can be volatile in shorter-term periods; market returns in the past couple of years have been flat. Second, two are tax-saver funds which have lock-ins. Every SIP instalment will be locked in for 3 years. You may thus be unable to access much of this investment if you need it in 2-3 years. Third, close to half the funds are high-risk, tilting towards mid-cap and small-cap stocks or that have aggressive strategies. This is an extremely high allocation that leaves your portfolio more vulnerable to market corrections. This holds true regardless of your timeframe and even if you do not plan to use these investments for your house.

So unless you push the planned construction by at least 2-3 more years, its best to divert at least part of your monthly investment into safer avenues. Check which of the old or new tax regimes will minimize your tax outgo. Then, invest in a mix of fixed deposits (especially if you do not have to bear taxes or you are in the lowest tax bracket), debt mutual funds, and hybrid funds such as balanced advantage or equity savings funds.

If you don’t intend to use these funds for construction, you still need to reduce the risk. Consolidate tax saver funds into one, and re-allocate the SIPs in the aggressive funds into the Nifty 50 index.

It is good that you have started your savings and investments right away; investing smaller sums over a longer period is better than putting off investing waiting for larger savings to accumulate. Gold as a long-term investment is useful, but avoid investing a big part of your savings here. At best, let gold account for about 15% of your total investment. More importantly, gold ornaments are not efficient ways to invest in gold; one, it is hard to sell it in return for cash as most jewellers are willing to only exchange for new jewellery. Two, due to making charges and other wastage, you do not realise the real market price of gold. Three, there is also the cost of storage. So, for further investments in gold consider Sovereign Gold Bonds or gold ETFs/ mutual funds.

You can start investing what savings you have each month in a simple fixed deposit (you can go for a recurring deposit). At this time, along with attractive FD interest rates, your tax status will be low and the safety of FDs will help you build a good basis for your investments. As your income and savings grow, you can begin to invest in higher-returning products such as a Nifty 50 equity index fund.

The good thing is to start investing, regardless of amount. If you can save the additional Rs 2,000, add it to the SIP amount. However, one fund will suffice for the entire amount. SIPs of Rs 250 in two funds is unnecessary – the amount is too low for any meaningful diversification. Stick to one aggressive hybrid fund. You will need to hold this fund for at least 3-4 years. Stop SIPs in the second fund. If you are able to increase savings down the line, add a Nifty 50 equity index fund. Note that all these funds do require you to take risk.

However, this investment is very unlikely to be able to meet any of the expenses you have mentioned. At best, you may be able to meet the 2-wheeler expenses - provided this goal is at least 3-4 years away. Otherwise, it is best to skip mutual funds altogether and simply invest the full amount in a fixed deposit as it offers more certainty in returns and is low risk. The tax impact, given your income level will be negligible and current interest rates are high.

First, know that high returns do not come without risk; you can’t ask for both safety and high returns. If you intend to invest in equity funds, be prepared to take at least some risk. For inflation-beating returns in the long term, investing in equities (stock markets) is the best option. Since you have PPF, you have already started building a safe foundation for your investments – continue with this, and add equity-oriented mutual funds to improve overall long-term returns. You can include FDs as well in your investments as they are very low on risk, if you are willing to bear the tax impact.

With equity, first understand the basics of how stock markets work and what the risks are. There are plenty of sources available online. Broadly speaking, markets are volatile in the short to medium term but beyond 5-7 years, risk of losses and volatility is low. You need this kind of holding period for equity and you should be willing to hold through stock market corrections. Then understand the different types of mutual funds – even a broad understanding will go a long way in helping you picking and sticking to the right investments.

Go for simple funds and avoid those with complex portfolio constructs or which you do not understand. You can start with plain hybrid aggressive funds or equity index funds such as the Nifty 50 index. Add on other funds slowly once you develop a better understanding of how markets and funds work.

(The writer is Co-founder, PrimeInvestor.in)