Mutual Funds

Fund Talk: Choose diversified equity funds for retirement saving

K. VENKATASUBRAMANIAN | Updated on March 10, 2018

A tax saving instrument is not the ideal avenue to save towards retirement.

I am 41, and work as a teacher. I will retire at 58 with no pension benefit and have just started investing Rs 1,000 every month through SIP mode in Franklin India Taxshield. In the future, I would like to invest another Rs 2,000 till my retirement age. Can you suggest some good funds where I can invest to have a healthy corpus at retirement? My monthly income is Rs 30,000.

S. SureshAlthough you have started a bit late towards saving for your retirement, there is still a reasonable amount of time for you to gain significant capital appreciation.

You have chosen a tax saving instrument for investment, which is not the ideal avenue for saving towards your retirement. Besides, each instalment in tax saving funds is locked for a period of three years.You should opt for diversified equity funds for your retirement purpose. So, switch from Franklin India Taxshield to Franklin India Bluechip, a large-cap fund with a proven long-term track record and invest Rs 3,000 there. When your surplus increases, you can consider adding more schemes to your portfolio.

You may also consider investing in the new pension scheme (NPS).

*** I want your advice on investing about Rs 17 lakh in the name of my three grandchildren in HDFC Children’s Gift Fund - Investment Plan. What is the minimum period the amount is to be invested? I wish the amount to be invested for a period of 15 years or when the children turn 18 and use it for their education needs.

M. Sastry

You have chosen a fund with an excellent long-term track record. It is an ideal choice for those intending to invest in the name of minors.

There are two options — with and without a lock-in period. The first option is with a lock-in period of three years or until the child turns 18, whichever is later. Without the lock-in, withdrawals for the first three years would attract an exit load of 3-1 per cent. You can choose the option with lock-in to serve your purpose.

*** I have been investing in the following schemes for the last five months: SBI Magnum Equity, Rs 2,000; SBI Emerging Business, Rs 2,000 and SBI Gold, Rs 5,000.

My plan is to stay invested for five years. Please let me know whether the investments are on the right track or whether I should make changes in the schemes.

PriyaThere are many flaws in the way you have chosen your funds. You have chosen funds from the same asset management company, which will deny you the benefits of diversifying across houses and their varied investing styles.

Second, you have allocated more than half of your portfolio to gold funds, which is far too much. Investment in gold must not account for more than 10-15 per cent of your portfolio. It must be considered at best as a hedge against inflation. Finally, there seems to be no specific focus in the way you have selected the schemes.

The investment horizon of five years is not too long. Our suggestion would be for you to stick to large-cap and balanced funds, with some investments in gold schemes as a diversifier. Split Rs 9,000 as follows: invest Rs 2,500 each in UTI Opportunities, ICICI Pru Focussed Bluechip and Tata Balanced. These funds have a better long-term track record compared with the schemes that you currently own.

Invest the balance Rs 1,500 in Reliance Gold Savings fund.

*** I work for a leading media company. I am 32 and wish to retire 45-50. Please let me know the best funds where I can invest Rs 15,000-25,000 a month. As I am young, I can take risks on my investments. My intention is to achieve a large corpus after 18-20 years.

R. JoshiYou have done the right thing by starting out on your retirement by clearly stating the timelines as well as your risk appetite. A large timeframe of 18-20 years will enable you to achieve meaningful capital appreciation.

But you must note that it is necessary to have a balanced portfolio with investments in mutual funds, debt instruments (FDs, RDs, PPF etc), gold and real estate.

We presume you have already made sufficient investments in other venues or will do so when your surplus increases. You have stated that you can invest Rs 15,000-25,000 every month. We take the average of Rs 20,000 to be your investible surplus. Split Rs 20,000 as follows: Invest Rs 5,000 each in HDFC Equity and UTI Opportunities. Park Rs 4,000 each in IDFC Premier Equity and ICICI Pru Discovery, which are two mid-cap funds with a proven track record. The balance Rs 2,000 can be parked in a balanced fund such as Birla Sun Life 95 or in gold through Reliance Gold Savings.

Review your portfolio once every year and take corrective action, if necessary.

Published on June 08, 2013

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