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'Restrict your exposure to only four funds now'

Last updated on: July 3, 2009 

Have a query regarding your mutual funds? Maybe we can help.

Drop us a line and our expert, Anil Rego, will answer it.

Got a question for Anil Rego? Please write to us at getahead@rediff.co.in with the subject line 'Mutual fund query for Anil Rego.

I am planning to invest in the following mutual fund schemes through the SIP route. I am planning for Rs 1,000 every month for each scheme. Could you please advise on whether I can proceed with the following schemes?

1. Magnum Contra
2. HDFC TOP 200
3. Franklin India Prima Plus
4. Fidelity Equity
5. DSPBR Top 100 Equity Reg
6. Sundaram Select Focus -- Appreciation

Raghuraman Sesharaman

Anil: Your choice of Mutual Fund houses is good. Most funds have a good track record, however, there is a significant bias towards largecap funds. It is advisable, that you create a judicious blend by including midcap funds as well. Furthermore, we suggest restricting your exposure to 4 funds at this stage, we suggest you to include Gold fund as well, which will counter the equity market effectively since the bullion market is negatively correlated to equities.

I want to park my funds in Money Market instead of keeping in banks, should I go with Liquid funds or liquid Plus funds or Debt LTP /STP? I want to keep risk to minimum. Tenure is six months to 12 months. What is the percentage of risk in Debt funds (both short and long term)? I want to start an SIP of ELSS funds which fund is recommended: a) SBI Magnum Tax gain b) Sundaram Tax Saver c) HDFC Tax Saver

Suresh

Anil: You can use liquid plus funds, which has lower dividend distribution tax incidence at 14.1625 per cent, for a liquid fund the DDT is applicable at 28.325 per cent. Long Term Income funds would have risk and can be avoided as you mentioned that you want to take minimum risk. Short-term plans will be ideal over a 6-12 month period. The risk is minimal for this cadre of mutual funds. Within the world of mutual funds, we can tag this avenue with a 'Low risk' profile. Liquid and Liquid Plus fund have a very low level of risk and are a good alternative to bank deposits even for a low risk investor.

All the 3 funds chosen have good track record, you can go ahead with any of them. You can even do a combination. If I have to choose one out of the funds it would be SBI Magnum.

My name is Kiran. I am working in Allied Digital Services Ltd as a customer support Engineer. My Age is 21 & my monthly salary is Rs 7,100 in hand. After all my expenses I save only Rs 2,000. Please suggest good mutual fund, ULIPs. Or which is profitable for me or my future?

Kiran

Anil: We suggest you to start your investment via mutual funds, you can invest in 2 diversified equity mutual funds -- HDFC Growth and Reliance Growth -- one is a largecap fund, the other being a midcap fund. You can commit on a longer term say 5 years to 10 years to grow your corpus for your financial goals.

I want to invest money in MF through SIP route and have below queries on the same:

1. Can I invest say Rs 10,000 in a MF and then from the next month invest Rs 2,000 for 6-month period?
2. If I apply for mutual fund SIP through my bank account will the commission/brokerage charges of 2.25 per cent be deducted every month? Or only for the 1st month's investment?

Anand

Anil: 1. You need to commit a stipulated amount towards your MF, hence, you cannot change the amount during the committed period
2. Entry load will be applicable if you route your investment through a distributor (including a bank). If you approach the mutual fund house directly then the entry load will be waived. The entry load is applicable on each installment of your investment.

I'm Vijay from Chennai. I have few queries on MF/ELSS.

What is the difference between ELSS and MF? I'm investing Rs 1,000 pm in SBI Magnum Tax Gain Scheme -- Growth (SIP for 12 months). Can this be called as ELSS?

I started investing in April'09 and the lock-in period ends in March'12. Shall I immediately take the money I invested out of this in April'12 or should I wait till April'13, since the last installment of my SIP ends in March'10?

Vijaya Karthick

Anil: ELSS (Equity linked savings scheme) is a tax saving mutual fund. There are other mutual funds without such tax benefit. ELSS schemes will qualify for tax benefit u/s 80C, which has an overall limit of Rs 1 lakh. SBI magnum tax gain is an ELSS. Please note that the lock in period is for each installment.

'De-risk your portfolio by investing in SIPs'

Last updated on: July 3, 2009 

Since one year, I have been investing in SIP (DSPBR Mutual Fund). Now, I want to invest in another SIP. My investment horizon is for about 20 years. Please suggest a good MF for investment of SIP for 20 years. 

Muralidhar.R

Anil: We are unsure which fund type you have invested in, given your time horizon you can look at a combination of largecap / midcap / contrarian style of investing. This again depends on the investible surplus that you hold, we suggest you to invest in one or more funds as per your investing ability:

I have come across a news item on the above subject and am pleased to note that you are giving answers to the queries on mutual funds.  I have a query and would appreciate your answer to the same. 

I had invested about Rs16 lakh on mutual funds in the year Jan 2008 when the market was on top but since then the position is well known and the investment is practically at its lowest. I have not lost confidence as this is a phenomena, which normally happens to markets world over and would definitely return to normalcy given sufficient time for the same. Am I correct in my assessment of the situation? I am particularly worried over two investments i.e. one on JM Financial (Rs 1.5 lakh) and JM 11 Core Fund (Rs 1 lakh). These two have suffered badly in the recent market slump.  

I would need your specific answers to these two investments i.e. will they improve and what is the current position of the company?  I am getting different comments about this company, which are not encouraging. What is your advice? 

Rest of the investments are in good holdings and they are improving. My worry is only on JM investments. Would appreciate your early reply, thanks. 

P D Padmanabhan

Anil: Firstly, I would like to congratulate you on your resilience and calm despite seeing your investments slump to real low levels. It was indeed not a great idea to deploy equity one time when the markets were at a peak. Ideally, it is advised that you de-risk your portfolio by using the systematic route of investment. This will provide the benefit of rupee cost averaging.

JM was battered badly during the market downturn. Given that you have recouped some of the losses during the current rally, you may choose to exit the funds and invest in better funds on market dips in a systematic way. It maybe difficult to do based on your past experiences, but you will be able to recover your losses faster if you continue investments while markets fall as well. This can be done with a 3-5 year perspective, it may make sense to let go of a laggard fund (although it may recoup in the long term), it may not provide optimal returns, you can incur losses at this stage buy park funds in a better fund which will provide better returns in the long term.

Hi Anil, I am planning to invest about Rs 2 lakh in mutual funds. Is it the right time to invest? Which are the best funds? How long should I keep the money invested?

Rohit

Anil: You can design a portfolio with maximum 2-3 funds in it. You can initially park the funds in debt and conduct a systematic transfer into equity over a 25 week / 50 week horizon. One of the funds could be Gold (20 per cent of your portfolio). The other two can be diversified equity funds. Investing via systematic route will ensure that your portfolio is appropriately de-risked and you avail the benefit of rupee cost averaging.

I have invested in two mutual fund houses, Reliance and Kotak, and I'm investing for last two years. I wonder how these fund houses make profit when no charges are levied when anybody buy the funds. Also, what is the difference in mutual fund and ULIP (forget the insurance covered that comes with ULIP) when both invest in the market?

Sanjeev

Anil: Mutual funds also have fund management charge, entry load, exit load. ULIPs normally have higher initial charges and they grow lower over a medium term horizon (although there are options where the charge is held even right across). There are ULIPs that have lower fund management charges (FMC) than mutual funds and this could significantly lower the costs in the long term considering that the FMC is charged throughout the entire tenure of the investment on the accumulated fund value. ULIPs and MFs are similar in the way the funds are managed, except that ULIPs are packaged with insurance, also their charges are designed in a different manner as compared to MFs. Mutual funds are ideal over a 3 to5 year horizon. ULIPs can be considered over a 5-7 year horizon (a fund with lower FMC can typically outperform a mutual fund + term cover scenario over this period). You need to be cautious while purchasing a ULIP because there is a lot of mis-selling that happens.

I would like to start investing in mutual funds from next month. Please give names of few mutual funds that can give me maximum returns in 3 years. I like to go for SIP and hopefully Rs 5k monthly only for MF.

Ravishankar Koppad

Anil: Mutual funds are not guaranteed avenues, from an equity asset class, one can expect good returns over a 3 to 5 year horizon (year-on-year) returns. You can split it across 2 funds: one largecap and one midcap fund. HDFC Growth and Reliance Growth can be a good option at this stage.

I have following investment in mutual funds:

I want to know whether it will be better to add new fund in the portfolio or to continue SIP in existing fund. Please suggest new fund if any.

Amit D. Patil

Anil: You can continue your SIP arrangement with Reliance Regular Savings Equity, you can choose other funds for the balance amount. Given that you have some exposure into equities already, you can also add gold fund within your portfolio.

'Equity exposure depends on your risk appetite'

Last updated on: July 3, 2009 
I want to invest in mutual funds. Please tell me is it the right time for investing?

Ramegowda

Anil: You can use the systematic route for investing, in such method one need not time the market. You can initiate investing in mutual funds via the systematic route at any point of time. I have covered some stable funds in other responses.

How should one plan his investment in mutual funds so that there is enough hedging from the risk? Say, for an investment of Rs 1 lakh in a financial year, what would be the most appropriate breakup of investements (mutual funds, insurnace policies, FDs, etc)

Juhi Garg

Anil: Equity exposure would depend on your risk appetite, your age and financial goals. Even while investing into equities, it is best to use the systematic route, which will de-risk your portfolio. It is also pertinent to use tax-efficient avenues. Fixed deposit returns are taxable. You can also use Gold as an asset class, which will act as a hedge against equities. One needs to assess the life cover requirement based on various aspects such as corpus required to sustain monthly expenses, liabilities, corpus for financial goals etc. The information provided is too less for me to be able to give a distribution.

I want to invest Rs 1000 per month for 10 years starting from now for my kids' higher education. Kindly advise which is the best SIP for the same. Risk that I can accept will be medium to high. So also advise what percentage of my money should I invest in growth & bond for any particular SIP mutual fund.

Sukadeb Hansa

Anil: Given your tenure is long term, we suggest you to invest the stipulated sum of money in diversified equity mutual fund. You can, as suggested by you use the systematic investment route for investing the same. Given your risk profile, you can use Reliance Growth / Birla Sunlife Midcap fund for investment.

I have been investing in Mutual Funds from the past three years, below is my portfolio. Please tell if I am investing in the right mutual fund or should I change to other mutual funds?

SIP's every month:

Kindly tell which are the good funds for SIPs as I am planning for another Rs 2,500 every month.

Satish

Anil: Lump sum investments:

You can continue to hold the funds mentioned above, most funds have a good track record, you can move out of SBI Infrastructure fund when the fund matures (post lock-in). This can be routed into yet another diversified equity fund.

SIP investments:

We suggest you to replace SBI Magnum Global Fund with SBI magnum contra fund, the opportunities in domestic market look promising. Also, there is considerable exposure in Reliance growth via SIP of Rs 2,500 pm. You can replace the other installment of Rs 1k per month with DSPBR World Gold fund, this will add a flavor of gold in your portfolio. Your additional SIP could be in a fund like HDFC Equity fund if you would like to take lower risk and Sundaram Select Midcap if you can take risk.

I want to invest around Rs 1 lakh in market for short term (maximum 2 years). I am not sure whether to go with SIP or mutual fund. Almost every mutual fund is having 3 year lock-in. Can you please suggest some good mutual funds capable of giving good returns in short term and not having 3 year lock in or SIP will be the right option?

Deepak Dhande      

Anil: Diversified equity mutual funds do not have any lock-in (only ELSS funds that give you tax saving have a 3 year lock-in). We suggest you to initially park the funds into debt and then conduct a systematic transfer into equities over about 25-week period.

'Budget 2006 altered the tax treatment of mutual funds'

Last updated on: July 3, 2009 

What constitutes equity oriented mutual fund or in other words what should be the minimum equity component to call it as equity oriented? If possible, please quote any official circular from RBI/SEBI or any other government agency?

S L Jain

Anil: 65 per cent equity exposure makes it an equity-oriented fund. The ruling was during budget 2006, excerpt of which is mentioned below:

Budget 2006 altered the tax treatment of mutual funds in a manner that affects balanced funds. Under the new norms, at least 65 per cent of corpus must be invested in equities, (up from the earlier threshold of 50 per cent), to qualify as an equity-oriented fund for tax purposes. Many funds, which were receiving the tax benefits of equity-fund treatment, will have to raise their equity exposure to keep those tax benefits.

I had invested in the equity market through the mutual fund channel when the Sensex level was 21,000. Unfortunately I did not invest using SIP. Now, all my investments are in red. Will my investments come in green only when the market reaches back to 21,000? Or it is not necessary for the market to reach that level? 

Anant Karnani

Anil: The long-term picture remains positive, hence depending on the funds you hold, we suggest you to continue to stay invested, you can deploy additional amount when the market dips to average your cost. If you do not average out, if your fund does not outperform the market, then markets would need to cross 21,000 for you to recover you capital.

I am an NRI and working with a multinational company outside India. I want to take some mutual fund plans. There are thousands of scheme in the market, from which selecting 3-4 funds are very tough, as I don't have lot of knowledge about this. My age is 25 years and I can take risk up to 60-70 per cent of my investment. Kindly advise.

Deepak Sabharwal

Anil:  We suggest you to invest in one or more funds as per your investing ability:

Some fund houses do not allow NRIs to invest. Hence, you may need to avoid them.

I am 27 years of age and I would like to invest 60 per cent of savings into equity SIP for a period of 3 to 5 years. Sir could you please suggest few best SIP in which I can invest in and whether my decision of investing in SIP is correct?

Suhas

Anil: Your decision to invest via SIP in Mutual fund is correct. SIP is only a mode of investment and is not an investment avenue. We have suggested funds in various responses.

'What is the ideal MF portfolio for a middle class family?'

Last updated on: July 3, 2009 

I want to know whether the income gained from SIPs in equity mutual funds is taxable? If yes, should we show the whole redemption amount from a SIP in our IT return or only the profit amount i.e. after deducting the SIP cost amount?

Lalit

Anil: Capital gains arises only on sale of your equity holding (shares / mutual funds). If you have held the units for more than 12 months then it is long term and the tax liability is 'nil' on long term capital gains. If it is held for <=12 months, then the tax liability on capital gains would be 15 per cent + cess.

I am planning to invest Rs 2,000 each in Franklin Templeton's flexi cap and Blue chip fund through SIP for one year. Please advice whether this is a good investment or else please suggest some good funds to invest. I have SBI infrastructure fund series growth. It is underperforming from the inception date. Should I switchover or continue?

Prashant Hegde

Anil: You can initiate your SIPs with Franklin Templeton Flexicap, you can choose a largecap fund from some other fund house this will offer the much-needed diversification. You can choose to invest in HDFC Growth, Birla Sunlife Frontline Equity and SBNPP Select Focus.

You can switch to ICICI Pru Infrastructure. You can hold the infrastructure fund for the time being with the new government proposing to concentrate on infrastructure initiatives. This sector could categorically see a significant boost.

I have already invested lot of money in equity through mutual fund in share market, and lost lot of it also, but I want to know the ideal portfolio for a middle class family consisting of husband wife and two small kids.

Gireesh Kulkarni

Anil: You will have to plan for your financial goals. All your investments should be aligned with financial goals. You need to consider a complete evaluation and conduct investments accordingly. Life cover, medical cover, corpus requirement for each need has to be evaluated. You can plan this need by means of combination of investments that have a debt component as well. Do not go overboard on equity exposure. Have a variety of investment avenues to achieve optimal diversification. This is essentially vital to reduce risk.

You can invest about 80 minus your age (for instance if you are 32 then you can invest 80 minus 32 = 48) into equities at the maximum. The preferred mode is through systematic investments.

My questions are:

1) I am an NRI and live in Melbourne (Australian permanent resident). Can I invest in Indian market from overseas?
2) If I invest in mutual funds, can I get any tax benefits from Australian Taxation system?

Harpreet

Anil: 1) Yes, you can invest in Indian MFs from overseas.

2) You cannot claim tax benefit on investment made in India with the Australian Taxation system.

Sir, for a long time I have been hearing the word mutual funds but I don't know actually what is it. And my friends are pushing me to invest in it. Can you please help me to find out answers for some  of my questions?

Salsan Jose E

Anil: How do I invest in it?

You can invest in it via signing physical forms and depositing it with the mutual fund house alongside a cheque stipulating the amount you prefer to invest. You can also do the investment online, if you hold a demat account.

Are there any good agents?

Please evaluate the credibility of the agent you approach. You will always find the good and the bad.

What is the risk involved in these funds?

There are a variety of mutual funds: debt / balanced / equity. They have varied risk profiles: low / moderate / high risk

What is possibility of making profit?

Mutual funds are not guaranteed, equities as an asset class have performed better than most other asset classes in the long term.

What is the minimum amount that I can invest?

Lump sum you can start with Rs 5k. You can start with SIPs of Rs 100 or Rs 500 per month.

It is very difficult to give detailed a response to queries. You can definitely visit various financial portals and many of them have a learning area that can help you understand mutual funds. You can also do a web search.

'How can I guard against losing money in MFs?'

Last updated on: July 3, 2009 

I had invested in various mutual funds in Dec 07, say about Rs 20K. Due to insufficient performance I made a switch within the same fund house at a loss around Oct 08 (portfolio being around Rs 12K during the switch). If I sell my MFs in June 09 at 21K would the profit be calculated based on initial amount of Rs 20K or Rs 12K and how will the time frame be calculated? Will it be from Dec 07 or Oct 08?

Shadab 

Anil: You have incurred a loss in the first transaction and in the second one you have made a profit. Both being less than 12 months are short term in nature, you can set-off your losses against the capital gains made this year, provided you have mentioned the loss in the ITR of the relevant FY and have carried forward the same. The gains will be calculated for each transaction (buy and sell of the same fund) on the purchase price of the relevant fund into which you switched (not on initial amount of Rs 20k).

I am planning to buy a mutual fund by the way of SIP. I need your help for selecting good SIP plans. I want to invest Rs 1,000 each in three plans for say around 10 to 15 years of time, So which plans should I select? Please advice.

Puran

Anil:You can consider investing in diversified equity mutual funds, you can choose any 3 of the following funds mentioned.

I have 500 units of SBI magnum multiplier 1993. I purchased it 12 years back. Since then I have not received any letter or dividend on it.

Abhishek

Anil: You can call the customer care and provide relevant details, If you have the application / folio number then it would be helpful to trace it. You may have to provide your name/DOB, address (registered in the application form), cheque number etc for them to trace the same.

I would like to know how to redeem my mutual fund portfolios through my bank

P P Natesan

Anil:  You can sign off redemption forms / give relevant instructions for online and the amount will be credited into your bank account for most private banks.  Otherwise you will get a cheque.

Last financial year I have invested over Rs 75k in tax-saving MF (ELSS). As the stock market went down I lost most of my money. This time again in order to save tax I have been approached by a stock trading company and the product they want to sell is ULIP (insurance plan for tax saving). In case I invest in ULIPs how can I guard against losing money? Can you please tell me more about ULIP (in comparison to ELSS) and suggest some good insurance policy for tax saving.

Rahul Mishra

Anil: ULIPs work well over a 5 to 7 year term. ULIPs have the option of choosing debt fund as well. The risk would be starkly lower herein. However, we suggest you to choose investing in ULIP after considering all the nuances for mis-selling prevalent on a large scale within the ULIP cadre. ELSS can be used this year again to average your cost if your have a 3-year time frame. You can ideally allocate a part of your funds this year round into ELSS with a sole purpose to average out your cost.
righthorizons
Anil Rego is the founder and CEO of Right Horizons , an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.