BackSector and thematic funds not ideal for retirement portfolio
An ideal portfolio for you would be a small-sized one with funds that do not require close watch
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I want to invest in tax-saving mutual funds (MFs) every month via a systematic investment plan (SIP). I am new to investing; I want to know the benefits of a tax-saving fund.
—Bharghavi
For many investors, tax-saving funds are their first MF investment. Such funds provide an immediate benefit in the form of saving on tax since investments in these funds are deductible under section 80C of the Income-tax Act (up to 1.5 lakh a year). Also, among all the tax-saving investment options under this section, MFs are the ones with the lowest lock-in period of three years. Given these benefits, even investors who are skittish about investing in a market-linked product venture into these funds to test the waters. And those who have done so have been well rewarded more often than not with handsome returns on their investments.
For example, investors who chose tax-saving funds three years ago have seen average returns of 27%-plus annualized. Though past performance is no guarantee of future results and such outstanding performance might not be realized in the next three years, tax-saving funds are still the best investment option for saving on taxes.
In your case, you would like to start an SIP in such a fund. Using the SIP route is best for investing in equity-oriented funds.
However, in order to claim tax deduction this year, you would need to complete your investment by 31 March. Since there are only 2-3 more months left until then, you might be better off doing simple lump sum investments.
I am 32 years old. I want to invest in mutual funds for my retirement. What kind of funds should I invest in?
—Kevin Fernandes
An ideal portfolio for you would be a small-sized one with funds that do not require close watch. You should be able to start an SIP in this portfolio, and barring an annual review to see if the funds are performing well, be able to let it grow by itself. What this means is that decisions such as which sector or industry to invest in at any given time, when to book profits, and where are the interest rates going should be left to fund managers of the schemes in your portfolio. In turn, this means that funds that require close monitoring such as sector and thematic funds should not be part of your retirement portfolio.
Diversified funds, wherein the fund manager makes the calls on the sectors, should form the bulk of your portfolio. Large-, small- and mid-, and multi-cap funds are the fund categories to pick from to build such a portfolio.
If you would like to moderate the risk in your portfolio with some debt market investments, again, it would be better to do so with asset allocation funds such as balanced funds and debt-oriented hybrid funds. In such funds, the fund manager makes the call on how much debt should be in the portfolio based on market conditions.
Queries and views at mintmoney@livemint.com
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