I invested in SBI Magnum Taxgain (dividend) and Birla Sun Life Tax relief 96 (dividend) in 2007-2008 when the NAVs were very high. The NAVs of both these funds have gone down sharply.

Please suggest whether I should wait or exit them and what other funds I should invest in, for the short term (except tax savers).

Deepti S

Since you opted for dividend payout in these schemes you will do well to keep in mind a few points: your NAV may seem too low because the dividends paid to you so far have been stripped from the NAV. Both the schemes held by you have declared annual dividends in the last three years. The NAV would have fallen to that extent in the dividend payout option.

Hence you need to take into account the dividends received so far before you calculate your loss. That said, the NAVs are still likely to be lower than your cost price, even after adjusting for dividends, if you had them between mid-2007 and early 2008.

While markets too are well below their 2007-08 peaks now, these funds have been underperformers in their category. Since your three-year lock-in would have been over, you can exit the fund despite losses.

Liquid funds for short term

Equity mutual funds are meant for long-term investment only. There is no guarantee of safety to your capital, especially in the short term. In fact, in prolonged market volatility such as the present one, you would have seen losses even over a 4-5-year time frame.

Systematic investment over at least a five-year period is necessary to expect inflation-beating returns from equity funds. If you are prepared for this, use the sale proceeds to invest in Quantum Long Term Equity and HDFC Prudence through SIPs.

But if you have any near-term needs or goals, then you can consider parking your money in liquid funds or ultra short-term funds. This is as good as parking your money in a savings bank account; only liquid funds currently offer higher returns than savings accounts. Liquid funds will also be subject to capital gains.

You can consider Birla Sun Life Floating Rate Short Term or Canara Robeco Floating Rate Short Term if you need the money in a couple of months. If your requirement is, say, six months to a year, you can invest in bank deposit with the above tenure.

*** I bought three funds by investing lumpsums in them. I will henceforth have a surplus of Rs 20,000 a month. I have around Rs 8 lakh in fixed deposits and Rs 4 lakh in PPF funds. I have bought lumpsum units in the following mutual funds: HDFC Top 200, IDFC Premier Equity and ICICI Pru Discovery. I have also started a SIP of one unit a month in SBI Gold.

I have insurance policies and a health insurance cover for my family (wife and a just-born daughter besides myself). All my investments cater to the tax deductions of Rs 1 lakh. 

I need Rs 2 crore after 25 years. Please suggest some investment options to achieve my goals.

Vineet Golchha

You should be able to comfortably reach Rs 2 crore 23 years from now, if your investments earn at least 10 per cent per annum. Equity mutual funds may deliver more. We do not know your age but assume that you may be in your 30s. If so, you can have at least 60 per cent in equities, 30 per cent in debt and the rest in gold. Again, as you have not provided the cost of your lumpsum equity investments, you will have to work out the right debt equity and gold mix for yourself.

Continue to use public provident fund and insurance premium for your tax saving needs. Even if you invest Rs 50,000 a year in PPF, if interest rates on an average remain at 8 per cent, you will receive Rs 14.7 lakh after 15 years.

Start SIPs

Moving to your portfolio, all the three funds that you hold are good but you have two funds — IDFC Premier Equity and ICICI Pru Discovery — with a mid-cap focus. While you may retain them, avoid fresh investments in the same as you do not have to take too much risk to meet your goal.

Start SIPs of Rs 5,000 each in HDFC Top 200, ICICI Pru Discovery and Quantum Long Term Equity. To this you can add another Rs 1,000 in HDFC Balanced, an equity-oriented fund which invests about a third of its assets in debt. This will provide some hedge during equity downturns.

As you have already started your gold investments, we assume you have surplus over and above the Rs 20,000 that you can now spare. If not, restrict investment in gold to 10 per cent of total investments. Reduce Rs 1,000 each in HDFC Balanced and ICICI Pru Discovery if you want to accommodate gold within the Rs 20,000 savings.

Keep reviewing your portfolio on a half-yearly basis and ensure that the funds beat their benchmark and do not also lag similar funds by 5 percentage points or more.

We have assumed a period of 23 years for your SIPs to reach the goal. But take stock of the investment value regularly. If, at the end of, say, 20 years, you have already touched Rs 2 crore, gradually move these to liquid funds or fixed deposits.

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

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