Your Fund Portfolio

With FD rates on the decline, what type of fund can I invest (a lumpsum amount) in to get reasonable returns with low risk? My advisor is suggesting investing in debt funds.

-Ramesh Parik

You are right in your observation that interest rates on fixed deposits have been on a declining trajectory over the past one to two years. But they have been inching in the past month.

Nonetheless, bank FDs aren’t inflation-beating instruments. Given the low rates and taxability of interest from deposits, the returns often end up being lower than the prevailing inflation levels, especially for those in the higher tax slabs.

That said, you must remember that bank deposits carry negligible risk of default and capital loss. Debt funds, on the other hand, can carry risk, as they are market-linked.

For reasonable returns and low risks, you can consider dynamic bond funds.

These invest entirely in bonds, non-convertible debentures and fixed instruments of the government as well as those of corporates. The instruments that these funds invest in are mostly rated very highly.

Long-term (in excess of three years) capital gains are taxed at 20 per cent (plus cess) with indexation benefits. Short-term gains are added to your income and taxed at your slab.

Consider HDFC Medium Term Opportunities, UTI Dynamic Bond and Aditya Birla SL Treasury Optimizer for lump-sum investments.

I am a retired person in the 20 per cent tax slab. To reduce tax outgo, I want to invest ₹1. 5 lakh in ELSS for the long term. Should I go for lump-sum investments or take the SIP route? Please suggest fund(s) which I can invest in.

-Tagore

It is good to note that you wish to invest in equity funds even after you have retired, given that beating inflation is a task best accomplished by equity instruments. However, you need to keep a few points in mind.

Given that you have retired, exposure to equity must be tempered. Ideally, you should not have more than 20-25 per cent of your portfolio in equity-related investments. Safety of returns and steady cash flow from your investments must remain your top priorities.

Therefore, debt must form the bulk of your investments. You must avoid investing just for the sake of saving on taxes.

You must explore options such as the Senior Citizens Savings Scheme (SCSS) offering 8.3 per cent return. Investments in the SCSS qualify for deduction under section 80C. But some portion can still be allocated to equity investments such as ELSS.

Each instalment in the tax-saving fund is locked for a period of three years. So you can avoid taking the SIP route. Split the total amount and invest in funds periodically as and when markets correct significantly. You may park sums in Aditya Birla SL Tax Relief 96 and L&T Tax Advantage.

My age is 25 years and I have SIPs — investing ₹ 5,000 each with a time horizon of 8-10 years — in the following funds: Franklin India High Growth Companies, HDFC Equity, HDFC Mid-Cap Opportunities, Motilal Oswal Focused 25, SBI Blue Chip, ICICI Prudential Value Discovery and Aditya Birla SL Frontline Equity.

I have been investing in these schemes for the past two years and would like to know if my allocation is appropriate.

-Keshav Bagri

You can continue with your investments in HDFC Mid-Cap Opportunities, SBI Blue Chip, ICICI Prudential Value Discovery and Aditya Birla SL Frontline Equity. HDFC Equity is a quality fund. But in recent years, its performance has not been top-notch. So you can shift SIPs from HDFC Equity to ICICI Pru Focused Bluechip.

Motilal Oswal Focused 25 does not have a long track record and its performance does not place it in the top quartile of large-cap funds. Besides, you already have three funds investing in large-caps in your portfolio. Consider moving out to Motilal Oswal Multicap 35 instead and park ₹5,000 in it.

Franklin India High Growth Companies has not delivered as well as some of its peers. Shift to Invesco India Contra, a quality multi-cap fund.

Send your queries to mf@thehindu.co.in

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

MORE FROM BUSINESSLINE


 Getting recommendations just for you...
This article is closed for comments.
Please Email the Editor