Mutual Fund Corner: 'I have invested Rs 40,000 monthly through SIPs since one year, what should I do?'

A) Good to note that portfolio is getting built for about 10 years, which is a strategic. Every equity MF investor should look at long term. On his question whether the portfolio allocation is well balanced or not, I would dissect his portfolio into a strategic part and a tactical part. In strategic part, I would say a mix of all the large cap bluechip funds, multicap and one of the Midcap, which is well oriented to capture long term growth. In the tactical part, the part the value fund, the thematic fund will come and in here is where one needs to do some tactical management. So today, we feel Tech and Consumer is the right sector to be invested in. But please bear in mind that these themes may be out of favour one day. So, you need constant advice on allocation in thematic funds and when the times change, you may have to change thematic funds tactically. Now on the value fund, probably this is the fund he will need to change because contra style and value style funds tend to do well in challenging times. Currently, economy is growing fast and having a growth style large cap oriented fund like Aditya Birla Sunlife Frontline Equity Fund will do well.

A) Looking at Kunal’s portfolio of mutual funds, it's very evident there is a clear over allocation to tax funds. I am sure what he is doing is looking at saving tax while investing in tax funds via SIP method, that’s a great Idea. Tax funds or ELSS funds have a tax benefit, but only up to Rs 1.5 lakh per annum. On the flipside, all ELSS are three year locked in funds. So he must be sure that it's not more than tax saving part what he is investing or else, he will unnecessarily have liquidity issues with his portfolio. Also by virtue of his allocation, I feel the allocation to mid and small cap is high and he must buy a diversified large cap equity fund, like Birla Frontline or HDFC Equity Fund to add to his portfolio.

A) Broadly, the funds chosen here will do well in long term and looking at the equity like returns in them, I have some good news and some bad news for him. Bad news first, I feel that his goal of Rs 1 crore will not be reached by these allocations and he will have to save and invest exactly double of these. So now the good news is that he has 10 year to go. So Uday, if you can't double the savings right now, you can step up your savings and save more as your earnings capacity goes up. You will definitely reach your goal with this regular saving method.

A) His portfolio has long list of funds and he has lot of value funds, which may not be suitable for high growth currently. As I mentioned earlier, a fast growing economy may not support value investing that much. He must look at coming out of balanced funds and allocate those to the 100 percent equity oriented to give fillip to the portfolio. Prashant has a steep goal, even though he has a long period to reach his goal, he has to look at investing some more money may be almost 2.5 times his current savings in regular investment or he should move some lump sum money approximately Rs 1.5 crore of his wealth to this portfolio for high growth and achieving his steep target of Rs 14 crore in 12 years.

A) It's great that he has a term plan that is a good thing so far as insurance is concerned. Starting on debt, he must up his allocation in Sukanya Samriddhi Yojana from Rs 30,000 to at Rs 1.5 lakh a year. This will come handy for his girl child’s education requirements. With his saving speed and the equity orientation of his portfolio for 25 years, he will surely reach his goal and have lots to spare when he reaches his retirement. So the mantra for his success is start early save regularly and choose only equity mutual funds for long term.

A) Assuming the child is three years right now and he will require his money 15 years from now. So first of all, while saving for a relatively long term of 15 years one doesn’t need debt funds. First of all change allocation out of the two debt funds to large cap equity funds, buy ICICI Bluechip and HDFC Equity Fund. The Saving of Rs 40,000 per month is good enough to reach your goal provided you are in equity oriented portfolio and diligent about savings. Here the caveat is that sometimes the inflation of education expense can be much higher than some of the investments. So, if his inflation adjusted cost is Rs 2 crore, he is fine or else save little bit more to beat inflation.

A) As we know that, dividend in the hands of the investor is tax free after the DDT treatment by mutual fund schemes. So, now in the current year, we do have DDT (payable by mutual fund schemes) across all mutual fund schemes.

Equity schemes have DDT = 10 percent + 12 percent surcharge + 4 percent cess = 11.648 percent overall.

Debt schemes have DDT = 25 percent + 12 percent surcharge + 4 percent cess = 29.12 percent overall.

Equity schemes have DDT = 10 percent + 12 percent surcharge + 4 percent cess = 11.648 percent overall.

Debt schemes have DDT = 30 percent + 12 percent surcharge +4 percent cess = 34.944 percent overall.

For NRI in Infra Debt Fund = 5 percent + 12 percent surcharge + 4 percent cess = 5.824 percent overall.

A)6-12 months in debt qualifies for short term capital gains tax, which is at 30 percent.

A) You can look at investing in equity mutual fund specially choose the diversified large cap funds like ABSL Frontline Equity Fund and the HDFC Equity Fund. These funds are from reputed fund houses and have competent fund management teams.