I invest through systematic investment plans (SIPs) in the following funds: Birla Sun Life Tax Relief (Rs500), HDFC Tax Saver (Rs500), Sundaram Tax Saver (Rs500), HDFC Top 200 (Rs1,000), DSP BlackRock Top 100 (Rs1,000), Quantum Long Term Equity (Rs500). I have also invested a lump sum amount in Quantum Gold exchange-traded fund. Is my portfolio alright?
You have chosen good schemes. Apart from tax-saving schemes, you are investing in a pure large-cap fund, a large- and mid-cap fund, and a multi-cap fund. However, SIPs on equity-linked savings schemes should be stopped by March 2012 as tax benefit on them will go away as the direct taxes code take effect. At that time, you should move your SIPs on them to other diversified funds. Given your current portfolio, you can add a mid- and small-cap fund from among HDFC Mid-Cap Opportunities or IDFC Premier Equity Plan.
What are fixed maturity plans (FMPs)? Is it worth investing in or should I opt for mutual funds (MFs)?
FMPs are closed-end debt MFs. They come in various tenors, between 90 days and 18 months, and can be redeemed only at the end of the tenor. Though their returns are not guaranteed like fixed deposits (FDs), typically they provide FD-like returns. However, from the tax standpoint, they are treated on a par with debt MFs and not like FDs.
Whether to invest in them or not is a decision that should be made in the context of your overall portfolio. Choosing to invest in FMPs while you wait for the equity markets to “stabilize” is not a good idea. Investment in FMPs should be made from the part of the money that you have slated for debt investments.
I am a student but earn Rs10,000 through tuitions and I plan to go for my higher education in next two years. I want to invest the entire amount on a monthly basis. Should I go for monthly income plan (MIP) or SIP? Also suggest funds that can help me get better returns.
With two years of investment timeline, it would not be prudent to take much risk. Ideally, you would like to have a corpus of your invested money plus healthy returns. MIPs invest mostly in debt instruments and about 20% of their portfolio is in equities. The risk of capital erosion in these funds is much lower than in pure equity schemes. Schemes such as Reliance MIP and HDFC MIP Long Term allow systematic investments like in equity schemes. If you can take a little more risk, you can consider splitting your SIP—one in a debt-oriented hybrid scheme such as MIP, and the second in an equity-oriented hybrid scheme such as HDFC Prudence or DSP BlackRock Balanced.
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