My daughter has been investing in some MFs and also in shares. As on date, her investment value is about ₹60 lakh. After the steep drop in values in March 2020, I feel apprehensive as she has two daughters for whom she may need about ₹3 crore after 20-22 years. Her present SIPs are HDFC Midcap Opportunities ₹3000, Mirae Asset Large Cap ₹3000 and ABSL Equity Advantage ₹2500. She has ₹16.5 lakh from sales proceeds of certain shares and mutual funds now. I plan to shift her SIP in ABSL Advantage to ABSL Digital India fund. She also has fairly good sums in PPF, Sovereign Gold Bonds and FDs. She is employed where PF scheme is not implemented and contributes ₹80,000/year to NPS. She has insurance cover in LIC Jeevan Anand for ₹20 lakh. Her income is about ₹75,000 per month. I feel bad that none of MF schemes selected by me are rated 5 star by BusinessLine . At current NAV is it advisable to start/shift to SIPs in large-cap funds other than your 5 star-rated MFs? Should she divert FDs on maturity to invest in property, or reinvest (the maturity proceeds of the FDs) in Floating rate RBI bonds, along with the funds she has from the sale of shares and MFs? She will not be in position to follow day to day fluctuations.

P.S Ramachandran, Chennai

At the outset, we appreciate your daughter has done well to spread investments across equity, debt and gold. Rather than buying gold jewellery and coins, Sovereign Gold Bond is among the best ways to invest in gold, apart from Gold ETF. Needless to say, PPF is one of the best instruments for long-term savings with floating interest rate, tax efficiency as well as low risk quotient. It is good that she is also investing in NPS to take care of her retirement corpus, especially because she is not a member of the Employee Provident Fund. Regarding insurance, rather than a traditional plan whose internal rate of return is at best similar to FD rates, it would be better if she opts for a term plan. This will serve the purpose of providing a cover for her dependents as well as reduce premium outgo. She can redirect premium savings to other investment avenues.

You have raised two queries – one on ideas to reinvest your FD sums as well the proceeds you have from the sale of shares and MFs ; two, on the fund choices.

As regards your first query, if she does not already own a home, she can use the maturity proceeds of the FDs as well as the sales proceeds from shares and MFs to part-fund a home buy, or take care of the down payment at least. Assuming she plans to continue working, her retirement is quite some time away and she would need a corpus for her children’s higher education and marriage only after 20-22 years, she has enough time to rebuild her savings for these goals. That said, buying a property for investment purposes alone – though the principal and interest payments may help save taxes - may not be a great idea as rental yields in India are quite low. With respect to the alternative idea of investing in RBI Floating rate bonds, you need to remember that while it ensures she gets market-linked interest rate, there is no option for compounding the interest here. The regular interest pay-outs can flow in and out of the bank account seamlessly, unless one makes an effort to reinvest the interest regularly.

Coming to your fund holdings and the related query, while direct investment in equities entail close monitoring, she need not worry so much about NAV fluctuations in mutual funds if she is a long-term investor. Also, with SIPs, you can average your costs by investing through market ups and downs and hence you need not exactly time your entry and exit into mutual funds when using this route. A CAGR of 10 per cent is a reasonable expectation from SIPs over the long-term, if inflation remains around the RBI’s target of 2-6 per cent and risk-free rate of return ( i.e. yield on 10-year government securities) is at around 5-6 per cent. A portfolio heavy on debt investments may not give inflation- beating returns. She can hence start SIPs in any of the equity funds rated 3 and above in our Star Track MF Ratings , based on her risk-appetite. She can also continue with her current funds rated 3-5 star by us. She can use a financial planner to structure her investments for retirement, children’s education, home buy etc. across asset classes.

Related Topics
comment COMMENT NOW