My mother, aged 78, has invested in the following mutual funds: Axis Treasury Advantage Fund Weekly Dividend: Rs 4 lakh; HDFC Growth Fund: Rs 1 lakh; HDFC Top 200 Fund: Rs 1 lakh; SBI Emerging Business Fund: Rs 2 lakh and SBI Dynamic Bond Fund: Rs 3 lakh

She has an annual income of Rs 2.50 lakh mainly through family pension and rent. Kindly review this portfolio and suggest changes for better returns.

Surendra Kumar We’re afraid your mother has been sold mutual fund products that are completely unsuited to her profile.

Given that she is reliant on pension and rent for her living expenses, it seems very inappropriate for her to invest as much as 36 per cent of her portfolio in equity funds.

The equity investment of Rs 4 lakh will also expose your mother’s wealth to too much risk, given her annual income of Rs 2.50 lakh.

You have not mentioned whether your mother had any specific financial needs in mind when she invested in these funds.

But assuming she would benefit from regular income from her investments to supplement her pension/rent receipts, it is unwise to invest so much in equity mutual funds, particularly in their growth options. Their returns may fluctuate wildly along with the stock markets and you may not be able to redeem them at full value should an emergency occur.

We would suggest that your mother redeem her equity fund units valued at Rs 4 lakh and park that money in safer investment options.

As she does not seem to be earning taxable income, she can consider investing the proceeds from her equity funds in the following options:

Locking into five-year fixed deposits from banks. HDFC’s Platinum deposits for 33 months now offer 9.65 per cent for senior citizens.

Post office senior citizens savings scheme, which offers quarterly interest at 9.2 per cent per annum. This carries a three-year lock-in period.

Monthly Income Plans from mutual funds, which have a small equity exposure of 10-15 per cent, may be an acceptable option too. These carry a higher risk than fixed deposits, but offer regular dividends as well as anytime liquidity.

As to the sum of Rs 7 lakh invested in debt funds — SBI Dynamic Bond and Axis Treasury Advantage — they have earned good returns.

But these funds may still not be entirely suitable to a retail investor who does not suffer tax. The dividend from these funds is likely to be remitted after deducting dividend distribution tax of 13.5 per cent. This will effectively reduce your returns.

Instead, investing in the growth option and redeeming units at periodic intervals is a more tax efficient way to make this investment.

If you don’t require the liquidity that these funds offer, consider re-allocating some of this money (say, Rs 2 lakh) to the above deposit options.

(Queries may be e-mailed to > mf@thehindu.co.in )

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