I am 40 years old and have limited exposure to equity as I am risk averse. I want to invest Rs 5,000 every month in balanced funds. Please suggest.
Balanced funds come in two flavours—equity-oriented and debt-oriented. The former invests 65-80% of its corpus in the equity market and the rest in the debt market. Debt-oriented balanced funds invest about 85% in the debt market and the rest in equities.
Depending upon the time-frame and your risk tolerance, you can choose between the two categories. If your time frame is three-five years and you don’t mind taking some risk, you should go for equity-oriented balanced funds. If either your time frame is shorter, or you want to avoid risk as much as possible, you should go for debt-oriented funds.
Good equity-oriented balanced funds include Birla SunLife 95, DSP BlackRock Balanced and HDFC Prudence. Some good debt-oriented balanced funds are Canara Robeco MIP, Reliance MIP and UTI Monthly Income Scheme.
Considering the current market conditions, which mutual funds (MFs) will give me decent returns over the coming years?
The main criterion to select an MF would be the time frame of your investment. The prevailing market conditions should only be a secondary criteria in almost all situations. If the time frame of your investments is less than two years, it would be best to stick to debt schemes or debt-oriented schemes. Beyond that, you can increase your allocation in equity schemes. For a horizon of 7-10 years (for retirement goals, for example), one could go with a 100% equity portfolio.
The next step would be to determine the actual schemes that constitute the portfolio. For this, you should consult the Mint-50 list of schemes.
Do MFs offer pension plans?
Traditional pension plans have two characteristic features—they allow an investor to save during pre-retirement years with little or no ability to withdraw and they provide a facility to convert the accumulated corpus (at the time of retirement) into a series of payments to support post-retirement years. At present, MFs in India do not offer a product with these features. Franklin Templeton offers a fund called Templeton India Pension Plan, but it is just a tax-saving fund with a three-year lock-in period.
This should not deter you from using MFs as an investment vehicle for retirement. In fact, the cost structures of traditional pension plans are higher than that of MFs. For a disciplined investor, it should be possible to construct a long-term MF portfolio, invest in it using systematic investment plans and build a healthy corpus until retirement when withdrawals can be made systematically.
Srikanth Meenakshi is founder and director, FundsIndia.com
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