I am 50. I have a six-year-old son. My wife and I have the following SIPs in either her name or mine: Axis Equity Fund - ₹7,000, Franklin India Bluechip - ₹8,000, ICICI Prudential Balanced Advantage - ₹6,000, SBI Blue Chip - ₹5,000, Franklin India Prima Plus - ₹5,000. Most of the SIPs are one-two years old. We want to accumulate ₹1 crore over 7-10 years through these investments. I also have an NPS account since the last four years where I put in ₹3,500 every month. I have invested ₹3 lakh in debt instruments over the last three years. Are our choices right?

Suhas Phadke

You and your wife are currently putting in ₹31,000 every month in mutual funds. Since you started investments one-two years ago and have a maximum horizon of 10 years, you will have roughly 11-12 years to meet your goal. If your investments earn a compounded return of 12-15 per cent per annum in this period, you may manage to reach your goal. But considering market uncertainties and the fact that you don’t have too much time, you can step up your investments as and when possible to be on the safer side. In this context, it is good that you have investments in debt instruments and the NPS to fall back on.

As far as the funds go, taking note of your age and your limited time, you have done well to choose either large-cap oriented or balanced funds. While you can continue with ICICI Pru Balanced Advantage, Franklin Prima Plus, Franklin Bluechip and SBI Bluechip, you can replace Axis Equity, which tends to be a bit of a laggard. Invest in Quantum Long-Term Equity, instead.

I am a 29-year-old government employee. I want to invest ₹16,000 per month in ELSS schemes. I wish to continue my investments for 18-25 years to meet future requirements like child’s education, house, retirement, etc, apart from the purpose of saving taxes. Which funds should I choose?

Shiv Gupta

Being young, it is good that you are willing to take higher risk to earn higher returns by parking your tax saving investments in ELSS schemes. That said, the amount you want to invest needs some reconsideration. An investment of ₹16,000 per month in a tax-saving mutual fund will amount to ₹1 .92 lakh per annum. But under Sec 80C of the Income Tax Act, an investment of only up to ₹1.5 lakh in instruments such as Equity Linked Savings Schemes, PPF, five-year tax saving deposits from banks/post offices, etc, will be eligible for tax deduction. Your Provident Fund cuts from your salary or NPS contribution too is eligible for 80C investments. An additional deduction of ₹50,000 (beyond ₹1.5 lakh) is available if this amount is invested in the NPS alone.

Hence, it will be better if you can take stock of other sums such as PF, NPS contribution, etc, before you decide to invest the entire ₹16,000 per month in ELSS schemes. Of course, there is nothing preventing you from investing more in ELSS schemes per se , even if you don’t get the tax deduction. But investments in ELSS schemes have a lock-in of three years, with every SIP too being locked in for another three years. Besides, there are plenty of top performing diversified equity funds available to meet your other investment objectives. Accordingly, you can invest the rest of your surplus in diversified equity schemes to meet your long-term goals. Over the years, as your salary grows, you can step up your investments in these funds or add new funds as well.

For tax saving purposes, choose DSPBR Tax Saver and Franklin India Tax Shield. While the former tends to take good exposures to mid-cap stocks, the latter has a large-cap bias. Among diversified equity funds, Birla Sun Life Frontline Equity, SBI Bluechip, Quantum Long-Term Equity and Kotak Select Focus are good options to choose from. These are predominantly large-cap oriented funds and boast of a solid track record. If you wish to take a bit more risk, funds such as Mirae Emerging Bluechip (mid-cap) and L&T Value(multi-cap) fit the bill too.

Send your queries to mf@thehindu.co.in

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