Your fund portfolio

I am a senior citizen (68 years of age) in the 30 per cent tax bracket. My pension amount is negligible, and we are dependent on regular income from bank FDs. Due to falling interest rates of FDs, as well as to reduce my tax outgo, I now intend to invest ₹10 lakh in mutual funds. I am prepared to defer returns from this amount by a year, after which I would like to go for systematic withdrawal plans (SWPs). I am not averse to taking at least some risk for higher returns.

Which mutual fund(s) would you suggest, along with the mode of investment (lump sum or SIP)?

AR Ramanarayanan

You are right in observing that rates on bank FDs have been modest in the past few years. Given that you are dependent on incomes from your FDs, you cannot afford to take too many risks with your corpus.

Before getting into mutual funds, we hope you have invested in avenues such as the post office Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) where rates are quite attractive, and which offer regular payouts. These are also highly safe options for you.

If you have already explored the above alternatives, you can consider safe debt fund options.

You can consider investing in Franklin India Ultra Short Bond - Super Institutional Plan (₹4 lakh), Kotak Corporate Bond (₹3 lakh) and Aditya Birla Sun Life Money Manager (₹3 lakh).

All the three funds invest only in debt instruments with the highest ratings, and can deliver 1-2 percentage points higher than bank FDs on a pre-tax basis.

You can invest these amounts as lump sums over a period of 3-6 months. SIPs may not be suitable for debt funds in general and more so for those investing in liquid, money-market and short-term instruments.

Gains on debt funds qualify as long-term capital gains (LTCG) if held for at least three years. LTCG on debt funds are taxed at 20 per cent with indexation benefit.

That way post-tax returns work out much higher than FDs.

Short-term gains in debt funds are added to your income and taxed at your slab.

You can opt for SWPs after a year, but the gains will be taxable. How much you need to withdraw depends on your cashflow requirements.

An option you can consider is investing only the amount that you will not need (from the ₹10 lakh) for at least three years, and not the entire ₹10 lakh. Then, each SWP instalment from the invested amount will enjoy the indexation benefit after a period of three years.

For detailed tax-related information, kindly consult your auditor.

Over the past several months, the rupee has been weak against the dollar. In this light, is it be advisable to invest ₹500-1,000 in IT/technology mutual funds through the SIP mode for a period of 3-5 years? Also, please give your opinion on Motilal Oswal Nasdaq 100 ETF and Motilal Oswal Nasdaq 100 Fund of Fund.

Kiran Kumar Tavva

The rupee has indeed been weak and has slid from 64 levels to around 71-72 against the dollar in the past 8-10 months.

But the currency’s weakness alone is not sufficient ground for investing in IT stocks or funds, as the underlying business fundamentals of software services firms need to be examined critically before taking the plunge. It may be difficult for retail investors to take calls on the sector, and time their entry and exit.

Having said that, the IT industry is indeed on a revival path with many top-tier and mid-sized players delivering well on the revenue and margin fronts. Besides, you are going to park relatively small sums in these funds and that, too, through the SIP mode.

Given the improving fundamentals, you can park ₹1,000 every month through the SIP route in ICICI Prudential Technology Fund.

We assume you have invested in other regular diversified equity funds and debt avenues before considering thematic/sectoral options.

Motilal Oswal Nasdaq 100 ETF invests in US stocks and has delivered extremely well in the past five years. Motilal Oswal Nasdaq 100 Fund of Fund invests in the units of the ETF mentioned earlier and allows investments through the SIP route.

Send your queries to mf@thehindu.co.in

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