I want to invest in tax-saving mutual funds (MFs) every month through systematic investment plans (SIPs). I am willing to stay invested for the next 15 years. Which funds should I pick?
At this time, the future of tax-saving MFs is a little uncertain. Although it has not been passed by Parliament yet, the Direct Taxes Code (DTC) is on schedule during the ongoing winter session. If it gets passed in its most recently released draft form, there will be no tax-saving MFs after April 2012. So, if you start a monthly SIP in these funds, you would need to wind it up by March 2012 giving you barely three months of investments. A better alternative would be to do your investments as three lump sum investments in each of the next three months to meet the tax-saving requirements for this financial year. Good funds to choose in this regard are Fidelity Tax Advantage and HDFC Tax saver.
There is a chance, however, that DTC gets delayed or, in its final form, tax-saving funds are still around. In the case of one such eventuality, you can always start an SIP in April 2012 rather than starting one now.
I can invest Rs 15,000-20,000 per month. I want to generate Rs 10 lakh in five years. The funds that I plan to invest in are ICICI Prudential Focused Bluechip Equity, HDFC Equity, Birla Sunlife Frontline Equity Fund and UTI Dividend Yield. Will these funds help me meet my goal?
Relative to your savings potential, your financial target is a very conservative one. So, you can definitely hope for a better end result from an MF portfolio for your monthly investments. However, we have to ensure that your MF portfolio is not too risky. A conservative portfolio with some equity exposure and a healthy amount of debt funds would safely get you to your target. Given this, the portfolio of four funds you have mentioned is too aggressive for your needs. One, it is an all equity portfolio. Second, the schemes in it are on the aggressive side as well. Two of the schemes are broad market schemes with significant exposure to the small- and mid-cap sectors of the market.
A more conservative portfolio would have only 50% in equity-oriented funds and the remaining in debt-oriented funds. On the equity side, you can invest half your funds in ICICI Prudential Focused Bluechip fund, which is a large-cap fund and the other half in an equity-oriented hybrid fund. The remaining half of the portfolio could be in debt funds. Some allocation to gold funds can also be considered along with debt funds to make your portfolio more diversified. This would represent a conservative risk portfolio more suited for your financial target and investment timeline.
Srikanth Meenakshi, Founder and director, FundsIndia.com
Queries and views at firstname.lastname@example.org