Mutual Funds

Fund Talk

K. Venkatasubramanian | Updated on June 16, 2012


Opening a PPF account is a good mode for tax saving, but note that it is locked in for 15 years.By focussing excessively on tax saving, you must not lose out on good investment options.

I am 24 years old. I've recently started working and my monthly salary is Rs 30,000 with a liability of education loan (Rs 1.5 lakh). Kindly guide me on investments so as to save on income tax. Also, I want to save money (around Rs 3-4 lakh) for my marriage which is likely in about two years' time. I plan to open a PPF account with SBI.

Choosing mutual funds, as there are a number of them available in the market, and narrowing the choice to decide between two or three is quite difficult. For example, I tried to choose between Canara Robeco Equity Tax saving and HDFC Tax Saver and was not able to.

Also, please guide me on debt market instruments and gold investment options where I can invest money to generate good returns.

Geetika Gupta

There are many points that you must take note of before embarking on investments.

It is important to differentiate investments and tax-saving. Both are different things and one must not be confused for the other. By focussing excessively on tax saving, you must not lose out on good investment options. Tax saving is important, for that would leave you with a higher surplus. But you must make investments directed towards financial goals in various instruments so as to maximise returns potential.

Now, coming to your first query, given your loan liability and the relatively short tenure of your marriage goal, we suggest sticking to safe instruments. You have not stated your surplus, post EMI payment. It may be challenging to build a sum of Rs 3-4 lakh in two years' time.

But you can invest a large part of your monthly surplus in recurring deposits of banks or in debt funds such as HDFC Multiple Yield. Opening a PPF account is a good mode for tax saving, but note that it is locked in for 15 years.

Next, regarding your query on choosing funds, there are very many criteria that need to be made before locking into any scheme. Before even embarking on choosing a fund, you must be aware of your risk appetite, have a fairly long investment horizon of 7-10 years and, ideally, specific goals to save for. It is also important to have a balanced portfolio with appropriate allocations to equity, debt, gold and if possible real-estate.

Next, the process of choosing a scheme from a myriad variety of funds is detailed and very involved.

Briefly, the fund's track record in delivering benchmark-beating returns across market cycles, the choice of stocks and sectors, the approach to valuation and momentum are key points. Besides, the fund manager too plays a crucial role. All these aspects must be kept in mind, within the risk-return framework, before taking exposure.

Many web-based sources and some newspapers are good starting points in choosing the right funds.

As you are just starting off, you can invest, say, Rs 5,000 every month in large-cap funds such as Franklin India Bluechip or ICICI Pru Focussed Bluechip and add balanced schemes such as HDFC Balanced to it. Given your age, you must ideally have an asset allocation of 70:20:10, in favour of equity, debt and gold.

Coming to your other query on choosing between Canara Robeco Equity Tax and HDFC Tax Saver, both are good funds with a long track record. But we would favour Canara Roceco Equity Tax as it has given higher returns over the past three- and five-year periods. For taking exposure to gold, you may do so through exchange traded funds (ETFs) such as Goldman Sachs Gold BeES.


I have invested in Franklin Flexicap (dividend reinvestment) since 2005. But despite opting for dividend reinvestment , the net capital loss in my investment in the fund is about 20 per cent in terms of NAV.

Sundaram Capex Opportunities fund (growth), also invested since 2005, is also having capital loss of 40 per cent. In view of the very poor performance of both these funds should I switch to some other fund and to which one(s), or should I continue to hold them?

Dilip D

It is not clear from your query as to whether you had invested a lumpsum in 2005 or have been running a SIP in both these funds.But either way, your calculation seems to have some error in it. For Franklin Flexicap, both lumpsum as well as SIP would have delivered you positive returns. The lumpsum in Sundaram Capex Opportunities would have delivered positive returns, while the SIP would have led to capital loss, though not to the extent that you have mentioned.

Now coming to the question of holding on to these funds, you can exit both of them and switch to other schemes.

The returns of Franklin Flexi Cap have not been as robust as some of its peers. You can switch to Franklin India Bluechip, if you need relatively safe large-cap exposure or can move to peers such as UTI Opportunities or Quantum Long-term Equity for a multi-cap approach.

Sundaram Capex Opportunities is a theme fund. Themes such as capital goods and infrastructure have had a torrid run over the past few years and the fund has thus been a prolonged underperformer. We suggest you move to a diversified equity fund such as the ones mentioned earlier and can extend the list by adding one of HDFC Equity, Canara Robeco Equity Diversified or ICICI Pru Focussed Bluechip Equity. If you can stomach risks, you can take exposure to mid-cap fund IDFC Premier Equity.

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Published on June 16, 2012

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