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Do you think it is a good time to invest in long-short funds?

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Do you think it’s a good time to invest in long-short funds and, if yes, are there  any recommendations?

                           —Mayank Kapoor 

 

Long-short funds follow the investment strategy where they take a long position in undervalued stocks that are expected to do well in the long run and short sell the overvalued stocks where the stock price could fall. Such strategies could work well in the present volatile times as well as during normal times. Mutual funds in India cannot offer long-short funds as they are not allowed to short-sell stocks in the fund portfolio. Alternative investment funds (AIFs)  offer such investment avenues. If the purpose  is to reduce risk, then you may consider Balanced Advantage or Dynamic Asset Allocation or Aggressive Hybrid funds. These funds carry less risk compared to equity diversified funds. However, it is quite likely that a long-short strategy could outperform these hybrid strategies.

 

I am 38 years old and earn 1.5 lakh per month, of which 57,000 goes towards a housing loan that will end in November 2023. I require funds for my two children for 10, 14, 18 and 25 years. Also, I want to amass 2.8 crore in 20 years. 

—Name withheld on request

 

The goal of 2.8 crore can be reached with a monthly investment of 39,000 if the overall portfolio return is 10% p.a. in 20 years. At 12% p.a. return, a monthly investment of 31,000 will be needed. 

We suggest you start investing for your children’s education as there will be some surplus left after taking care of your monthly expenses, EMI and investment for the 2.8 crore goal. As all your goals are long-term, you can invest in equity-diversified funds. You can increase this investment when your EMI stops in November 2023—invest that amount through systematic investment plans (SIPs). You can invest in UTI / HDFC Nifty Index Fund, Mirae Large Cap / ICICI Pru Bluechip, Canara Robeco Emerging Equities, Parag Parikh Flexicap, IIFL Focused Equity, and Kotak Emerging Equity (16-17% in each). 

Harshad Chetanwala is co-founder at MyWealthGrowth.com.

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