MF advice on bonus, loads and investment

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

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

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

Hi Anil,

I have made investment in following ELSS schemes (Growth option) in January '09 and following are the NAVs as on July 21, '09. Kindly guide me on the questions below with your expert knowledge on MF market. Thanks. Best Regards,

Ritesh Parekh

Questions:

What is difference in formula behind NAV computation of dividend option & growth option?

Anil: Under the dividend option (re-investment & payout), dividends are declared for the fund and to the extent of dividends paid. The NAV gets pulled down to make the returns inline with the growth option. Growth options provide capital appreciation. Both the options start off with the same NAV Rs 10 per unit and as and when dividends get declared, the Dividend option NAV will get lower than Growth option.

Hence, if one uses a dividend reinvestment option, the value will be the same as if you use the Growth option. The reason for difference if any could be when the taxation is different for growth and dividend options as is the case for debt funds.

For example, since dividend distribution tax is lower than short-term capital gains, one would use a dividend reinvestment option even if one wanted to make a cumulative investment.

What are bonus units & how are they credited to A/c?

Anil: The growth is distributed through bonus units. Example: if a bonus is declared in the ratio of 1:1, that is, for every unit held, an additional unit is provided, the purchase price of which is essentially nil. Your holding will increase in the fund. In this case also there is no difference between funds that are in growth option other than for taxation differences.

Why the NAV of Birla Sun Life Tax Relief' 96 Growth option is significantly less than Birla Sun Life Tax Relief' 96 Dividend option? Whereas it can be seen that in other 2 funds NAV of Growth Option is significantly higher than NAV of Dividend Option?

Anil: Growth option from Birla Sunlife Tax Relief '96 was introduced approximately one year back which currently trades with an NAV around Rs 10.21 while dividend option was around for a fairly long time and is trading with an NAV of Rs 82. The growth NAV is trading lower than Dividend NAV due to difference in launch date.

Does Birla Sun Life'96 Growth option is better investment avenue considering cheaper NAV compared to Dividend option of the same fund?

Anil: Past returns for a comparable period is an ideal way to evaluate a fund. Dividend option has stayed fairly long and hence, the NAV is higher. Both are well to do funds, dividend however has a longer track record and thus would be preferred over Growth option. One could use Dividend Reinvestment option if one wants cumulative returns.

Hi, I have the following 2 queries:

1. I read that entry load on MF is being waived off from 1st Aug 2009. Does that mean I do not need to pay any entry and exit load on MFs? Or does it mean that investors would be charged either the entry load or the exit load?

2. I had started a SIP (systematic investment plan) in July 2009 with my first SIP being charged with an entry load. Will this entry load be continued to charge in the coming months?

Samik Banerjee

Anil: 1. Yes, there will be no entry loads henceforth and advisors would need to directly charge fees from customers and thus there could be a service charge by the advisor. If you do the investments directly, there will be no entry loads. There is an exit load one per cent if redeemed before a year.

2. The no entry load is applicable for all SIP enrollments post August 2009. All SIPs prior to that will have the entry load deduction: this will be the case in the example given by you.

Hi Anil,

Please suggest good liquid funds in the time horizon of two years to invest through SIPs. Regards,

Santosh

Anil: It does not make sense to use an SIP for a liquid fund. Normally one uses an SIP to manage risk. The liquid funds have one of the lowest risk levels. In case you are meaning liquid options (without lock-in) you can use any of the following equity funds and their corresponding floating rate funds:

Diversified Equity:

• Birla Sunlife Midcap (Century SIP) = Insurance + SIP
• Fidelity Equity
• HDFC Top 200
• SBI Magnum Contra
• ICICI Prudential Discovery

In case you want to use liquid options then you can use a floating rate fund or a liquid plus fund from HDFC/Templeton.

Hi, My MF investments are as given below:

LIC Triple coverage (Jeevan Mitra): Rs 15,900 per annum (from 2005 July onwards for 15 years)

Max New York Unit Linked Insurance: Rs 24,000 per annum (From December 2007 onwards)

DSP Merrill Mutual Fund Growth: Rs 24,000 per annum (From December 2007 onwards)

Now, I have recently got blessed with a baby girl on June 20, 2009. So, I am planning to invest in for a child plan. I would like to know your views on this and give me a suggestion as to whether I should invest in a child plan or any mutual fund or PPF etc.

I am willing to further invest a sum of Rs 2,500 per month. So please let me know on this. Thank you,

Sathish Kumar

Anil: We need to assess your requirement first. For example, you may need certain sums of money at various milestones of your child. Consider inflation on the same and arrive at the corpus required for the same -- you may end up using a combination of avenues, given the age of the child, it would make ample sense to use a child insurance plan (may be even a guaranteed plan) which will offer payouts in regular intervals inline with child's milestones. While choosing a child plan keep in mind to have the cover on the parent and to include waiver of premium rider (preferably it should be inbuilt). You can evaluate plans from LIC, HDFC, ICICI Pru, Metlife, etc. For the balance, you can plan via child gift funds, balanced mutual funds, diversified equity mutual funds etc.

Hi Anil,

I want to save a corpus of Rs 50 lakh in 20 years for my daughter education. She is one month old. I have started investing in HDFC TOP 200 @ Rs 4,000 per month via SIP. Please suggest if this investment avenue will help me achieve my goal.

Regards,
Shajy John

Anil: Given the tenure under consideration, it would make ample sense to use a child plan (may be even a guaranteed plan) which will offer payouts in regular intervals inline with child's milestones.

While choosing a child plan keep in mind to have the cover on the parent and to include waiver of premium rider (preferably it should be inbuilt). If you are keen on market returns, you can invest into a child plan, which is a ULIP though it is useful to keep part of the planning into low risk options. For the balance, you can plan via child gift funds, balanced mutual funds, diversified equity mutual funds etc.

Dear Anil,

Currently I am investing Rs 6,000 in 3 different mutual funds as SIPs of Rs 2,000

• HDFC Top 200 Growth
• SBI Magnum Contra Growth
• DSPBR Tiger Growth

I am interested in investing another Rs 3,000 per month. Please suggest some good funds.

Regards,
Sidhartha

Anil: Some of the funds which we suggest for the stipulated amount are:

• Birla Sunlife Midcap (Century SIP) = Insurance + SIP
• Sundaram Select Midcap Fund
• ICICI Prudential Discovery

Hi Anil,

I am a salaried individual and have below mentioned portfolio. My goals are repaying the housing loan of Rs 11,00,000 after 6 years from now and also wealth creation. I can take risks to certain extent and already have enough insurance.

Can you please suggest if my portfolio is good enough to serve these goals? Also I have around Rs 6K to invest. Can you please suggest appropriate funds accordingly?

Here are the funds for you

• DSP BR TOP 100 G: Monthly SIP of Rs 2,500
• HDFC TOP 200 G: Monthly SIP of Rs 2,500
• SBI Magnum Sector Funds Umbrella Contra G: Monthly SIP of Rs 2,000
• Reliance Growth G: SIP of Rs 2,000

Thanks,

Subhash

Anil: All the funds chosen by you are good. You can replace SBI Magnum Contra with Sundaram Select Midcap -- the current holding is slightly defensive, you can add additional midcap exposure which will provide higher returns over the long term.

Hello Sir,

I purchased Reliance Equity fund 4 years back. But I have lost the details of my account number.  Now If I want to sell it then how can I do it? Please resolve my query.

Regards,

Sumit Sharma

Anil: You need to trace the folio number, contact the MF house, provide details such as application number, cheque number etc to trace the folio number.

Dear Mr.Anil,

First of all thank you very much for your valuable advice to all investors. It really helps a lot.

I have following MF investment through SIP:

1. DSP BR Top100 (G): Rs 5,000 per month

2. ICICI Infrastructure (G): Rs 5,000 per month

3. Reliance Diversified Power (Dividend payout): Rs 4,000 per month

4. Sundaram Select Focus (G): Rs 5,000 per month

5. Reliance Growth (Div):  Rs 5,000 per month

6. DWS Alpha Equity: Rs 5,000 per month (this is closed now).

Kindly advise me on the following:

Is this portfolio OK for long-term investment? Do you suggest any change? I will appreciate your quick response on my mail.

With best regards,

Supriyo M

Anil: The funds chosen are broadly ok. You can replace Reliance Diversified Power with Reliance Regular Savings Equity. You need not redeem the past investments of Reliance Diversified Power. Midcaps are likely to do well in the long term and one can reduce the sectoral funds unless you can track and move sectors around.

SIP period of DWS Alpha Equity is over. Should I continue?

Anil: You can use Birla Sunlife Midcap instead of DWS Alpha Equity.

Sir,

I am subscripting to HDFC Youngstar plus equity growth fund annually Rs 18k since 3 years
though first 2 years I bought units @ higher rate, 3rd at half the rate, though markets turning
around my fund value is less than my premium of 3 years. Though @the time selling it is
told to us return of 30-40 per cent in growth equity schemes are given.

I wish to split premium by 50 per cent & invest in pension scheme. Please advise which is best pension scheme shall I invest & your opinion reducing premium in Yongstar plus scheme?

Regards,

Tulasi

Anil: HDFC ULYS is a unit linked insurance plan with higher front-end charges. An ideal timeframe to evaluate the plan would be > 7 years. It is suggested that you hold this plan for a period of 7 years, by this time it is likely to provide appropriate returns, you can then take a call on what needs to be done. Post 3 years, the front-end charges drop substantially and the upside can be seen only over next 3-4 years. At this point, we suggest you to refrain from any action, next time please evaluate the plan appropriately prior to investing.

Hello,

I am 21 years old with salary of Rs 17,000 per month. Till now I did not think of investing.
I did not have any FDs, insurance policies and any other policies. From the next month I want to invest Rs 10,000 in HDFC Growth Plan.

Thanks & regards,

Venkatesh Malneni

Anil: You can split the stipulated of Rs 10 k per month, amongst 2-3 funds. Further, we suggest you to avail of a life cover at this point-- it will be cheap given your age. The funds we suggest are:

Diversified Equity:

• Birla Sunlife Midcap (Century SIP) = Insurance + SIP
• Fidelity Equity
• HDFC Top 200
• Sundaram Select Midcap
• ICICI Prudential Discovery

Hello Sir,

I am investing Rs 2,000 per month in the below-mentioned mutual funds. Please tell me whether those fund are good or not. I am investing for next 5 years horizon.

1) HDFC Top 200: Rs 1,000
2) Birla Sun Life 95: Rs 1,000

Also, suggest good pension plans. Waiting for your reply. Thanks & Regards,

V Raj

Anil: The funds are broadly ok. We suggest you to replace Birla Sunlife '96 with a better yielding tax plan, some of the tax plans which you can consider are:

ELSS Funds:

• Sundaram Select Midcap
• Birla Micap

Having one large cap and one midcap fund will balance your portofolio.

Pension plan payouts are taxable; you can alternatively look at a whole life unit linked option, which can be used to work like a pension plan.

Hi Anil,

I have a large exposure into equities and MFs. But of late I find that even with a SIP, the NAVs have been rising even during market dips and I find that SIP is not really helping me to average the market ups and downs.

I need a financial advisor who can have a look at my portfolio and advise reshuffling / revamping to ensure a better return. Can you suggest some names?

Thanks & regards,

Mani

Anil: The message is very generic. You can mail the details and we can help you out. You can even post the request on our Web site.