Too little risk may not fetch meaningful returns

With regards to the investment options, a period of three years does not allow you to take too much risk


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What is the process of changing bank account details for an ECS-enabled systematic investment plan (SIP)?

—Bhavesh Prakash

When it comes to an SIP, there are two bank accounts associated with it. Simply put, one is where the money comes from (monthly debits) for investments, and the other is where the money would go when there is a redemption request placed or dividend issued by the fund. For many investors these two accounts happen to be the same, but don’t have to be.

Typically, the bank account where the redemption proceeds go is one of the accounts associated with the folio containing the SIP scheme, and the other account is the one on which the electronic clearance service (ECS) mandate is issued.

To change the bank account where the debits happen, a ‘Change of SIP bank details’ form (each fund house has a slightly different name) is required, and to change the bank attached to the folio a ‘Change bank details’ form needs to be filled. In each case, however, the new bank account details would be required to be filled in and either a cancelled cheque of the bank account or an attested copy of your bank statement has to be attached as proof.

I earn around Rs. 1 lakh per month. I plan to invest around Rs. 20,000 a month for the next three years so that I get around Rs. 15 lakh after three years. Which kinds of funds should I invest in?

—Jose Jacob

To reach your target with your amount of monthly investment, you would need your portfolio to return close to 45% annually for the next three years. That is an unrealistic expectation for an investment portfolio. You would either need to increase your monthly investment (investing Rs.35,000 a month would get you to your goal with a more realistic return of 12% annually), reduce your target (with a Rs.20,000 investment per month, you could get to Rs.10 lakh in three years), or extend your time line (if you add two more years, you could reach Rs.15 lakh with your current plan).

With regards to the investment options, a period of three years does not allow you to take too much risk. At the same time, too little risk will not get you meaningful returns. You could choose balanced funds (equity-oriented hybrid funds) with a suitable amount or time period.

How does the higher service tax effect mutual fund investments?

—Gayathri

Only the fund management fee portion of the total expense ratio is subject to this tax. Currently, this fee is 50-60% of the overall expenses charged and passed on to the investors in a scheme. The increase in the service tax to 14%, consequently, does have an effect as an increase in this overall expense.

The amount of increase is likely to be 2-4 basis points (one basis point is one-hundredth of one percent) on the expense ratio of the scheme.

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