Your Fund Portfolio

Aarati Krishnan | Updated on April 08, 2018 Published on April 08, 2018

I am 33 years old and a beginner to MFs. I have been investing ₹6,000 every month through SIPs for the past 12 months across three funds — ₹3,000 in Tata Equity PE, ₹2,000 in Mirae Asset Emerging Bluechip and ₹1,000 in Mirae Asset Tax Saver. All the plans are direct. I would like to increase my investments by ₹15,000 this year. My goals are long term — mainly investing towards my daughter’s higher education expenses. She is now 2 years old. I am willing to take risks for higher returns. Is it advisable to invest in mid- and small-cap funds for the long term?

-S Satish

Your starting so early is a big advantage in investing towards your daughter’s education. Your investments appear to be more than adequate to fund your daughter’s education. Assuming the current cost of an engineering degree in India to be ₹10 lakh, at an 8 per cent inflation rate, you will need about ₹47 lakh in 20 years’ time. A monthly SIP of about ₹4,750 can get you to that corpus, at an annual return assumption of 12 per cent. However, while you have specified your daughter’s education as your only goal, we do presume you may have other goals, such as purchase of assets or property, saving towards your retirement and so on. Your additional investments can come in handy towards these goals.

All your existing fund choices are pretty good. Tata Equity PE Fund is a value-oriented multi-cap fund which focusses on stocks with a lower valuation than the market. Mirae Asset Emerging Bluechip is a fund that invests in larger mid-cap stocks with quality bias. Both have a very good 10-year track record across market cycles. Mirae Asset Tax Saver is a three-year old fund and has a limited track record to judge it by, but is from a well-established fund house.

Given that you have 20 years to save towards your daughter’s higher education, yes, you can add both mid- and small-cap funds to your selection. While such funds can deliver more volatile returns than large-cap funds, they can also deliver higher rewards for risks, if held for the really long term.

Assuming you would have ₹21,000 per month to invest now (existing ₹6,000, plus ₹15,000), you can plan your SIPs as follows.

Invest ₹5,000 per month in Tata Equity PE, another ₹5,000 in Mirae Asset Emerging Bluechip, ₹3,000 in Mirae Tax Saver and ₹4,000 each in Franklin India Smaller Companies Fund and HDFC Top 200 Fund.

Franklin Smaller Companies is a high-risk-high-return fund well-suited to your child’s education goal and HDFC Top 200 is a large-cap fund which can contribute to your other goals. It is good to see that you are aware of direct plans, which can save you significant recurring costs on MFs and bolster your returns in the long run.

But given that you are relatively new to mutual funds, do evaluate if you can handle goal setting, asset allocation and periodic changes to your portfolio, based on performance, without the help of an advisor. These are more important to reaching your long-term goals than selecting the right funds today.

I hold a significant investment in the UTI-ULIP 1971 scheme. I started investing ₹4,000 per annum in 1990, for a period of 15 years. I seek your advice regarding long-term capital gains (LTCG) tax if I redeem the units in FY19. Is there any chance of declaration of this scheme’s bonus units, which is still pending?

-RK Rao Gadalay

As UTI ULIP 71 is a debt-oriented hybrid scheme with a 60-40 debt-equity mix, it will be treated as a non-equity fund for the purposes of calculating LTCG.

There has been no recent change in the capital gains tax for non-equity schemes. The capital gains that you have made on your units since your initial investment will be subject to LTCG tax at 20 per cent, with indexation benefits allowed on your cost of acquisition. The scheme declared its last bonus issue in 2014. However, as an investor, you should note that a bonus issue in a mutual fund does not change your returns from the scheme, because a scheme’s NAV falls to adjust for the extra bonus units.

Basically, when a bonus is declared, you may get additional units, but the NAV declines, resulting in no net difference to your returns.

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Published on April 08, 2018
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