I am a new investor to equities, gold ETF and mutual funds. I recently started investments in mutual funds with a SIP in HDFC Top 200. I would like to have a secure monthly income of Rs 5,000 to Rs 8,000. Kindly suggest how to go about investing in mutual funds and gold ETFs to achieve this. I can invest Rs 50,000 to Rs 1 lakh but it should have liquidity anytime at 0-6 months. The investments should also be safe.

Dr Umesh Asamwar All the investment avenues that you have mentioned — direct equities, gold ETFs and mutual funds — require a long-term investment horizon of at least three to five years. In other words, investment in these avenues requires you to spare money that you simply don't need in the medium term.

Besides, these options are typically used to build long-term wealth and not receive secure monthly income soon after you invest. Equity shares and mutual funds do declare dividends but only at their discretion. Hence, they cannot provide any regular monthly income. Of course, trading in equities or commodities and derivatives may help generate some quick money. But they are neither regular nor secure.

Do not get carried away by the advertisement notices typically stuck in public places promising you a fixed monthly income of 10 per cent or more from equity or commodity trading.

No equity avenue can guarantee any regular income. In futures and options, if you have adopted a well-informed safe strategy, you may at best be able to predict the gains you can lock into.

Hence, if you are looking for reasonably safe instruments that will secure you monthly income, bank deposits or top-rated corporate deposits are your best bet. Post office monthly income is yet another option. You have not stated whether you can invest Rs 50,000 to Rs 1 lakh every month or you can invest this as lump sum now. Any which way, you will need about Rs 10.7 lakh as lump sum investment, to generate monthly income of Rs 8,000, assuming that a safe investment avenue such as bank deposit of post office monthly income scheme earns 8 per cent a year and has a monthly payout option.

For the long haul

Coming to your mutual fund, HDFC Top 200 is a good large-cap fund to begin your investments. But note that SIPs have to be continued for at least three years to reap any benefit from the rupee cost averaging that you do by buying the units every month. You will incur an exit load if you exit the fund within one year of investment. Besides, if the markets are volatile, you may even be exiting the fund with losses, given your short investment horizon.

If you are game for the long haul, then consider funds such as Quantum Long Term Equity and Canara Robeco Diversified. As we do not know your age and risk profile, we refrain from suggesting mid-cap funds. Mutual funds also manage debt schemes for those looking at relatively less risky options. Funds such as HDFC MIP Long Term, with about 20 per cent exposure to equity and rest in debt, or pure debt funds such as Birla Sunlife Dynamic Bond are also good options.

However, you should temper your expectations to inflation-beating returns of about 9 per cent in debt funds. For high liquidity, you can park some money in liquid funds of any of the large fund houses. But liquid funds cannot be expected to deliver high returns. On an average they can return 6 per cent per annum over the long term. They are meant to park money for short periods.

Moving to gold, your strategy for the yellow metal will be no different from equities as far as the time horizon goes. Investing small sums regularly to diversify your portfolio is an ideal strategy for gold ETFs. Gold too, has been volatile in recent years and hence holds the risk of losses in the short term. Restrict exposure gold to less than 10 per cent of your total investments and be ready to stay invested for five years or more.

*** I am working in an engineering college and would like to know how wise it is to invest in Sundaram Tax Saver since it is now below its par value (Rs 9.87 for Sundaram Taxsaver-dividend option). Please suggest other tax saving schemes that offer good returns.

Sreenivasan Avoid assessing a fund based on its NAV value alone, especially in case of a dividend payout option. The dividend is, after all, stripped from the NAV and paid to you. To this extent, the NAV of a dividend scheme will seem low.

Sundaram Tax Saver has regularly been paying dividends until 2010 and hence will seem to sport a low NAV. But to calculate returns you should take the NAV under growth option or add back the dividends you received on the fund.

Besides, Rs 10 is the face value of a new fund. Unlike a bond or a debt instrument, it is not a par value. When markets fall, the NAV of a relatively new fund can very well go below Rs 10. This does not mean that its performance is lacking or that you are getting a “value” buying opportunity. The quantum of fall has to be compared with peers and the fund's benchmark to assess its performance.

Sundaram Tax Saver has a good 18 per cent compounded annual return since its launch in 1999. That said, the fund has slipped in the performance chart in the last three years probably as a result of its high exposure to underperforming sectors such as financials and energy. If you do need a tax-saving fund you can consider HDFC TaxSaver or Canara Robeco Equity Tax Saver. Both these funds have a steady record.

Post the Budget this month, tax-saving funds may not enjoy deduction under Section 80C if the Direct Taxes Code is implemented in its current form. Hence ensure that you just make a lump sum investment in the fund now. Avoid SIPs.

Also, ensure that you distribute you tax-saving investment across other options such as public provident fund and NSC.

The recommendations made in this column address the readers’ query, based on their risk profile and requirement. They may not be applicable to all investors. Queries may be e-mailed to >mf@thehindu.co.in or sent by post to Business Line, 859-860, Anna Salai, Chennai 600002

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