Income, age key factors to consider when buying mutual funds

I had invested in Tata Liquid Fund. Now that the scheme’s categorisation is changing, should I redeem the units and invest in another liquid fund? I don’t have a specific goal for this money. —Parth Kaushal

All mutual fund companies have made a few or many changes to their product offerings recently. In many cases, there have been changes to names, and in some cases there have been changes to the fundamental attributes of the scheme such as its investment choices and/or the fund category it finds itself in. All these are being done to fulfil a Securities and Exchange Board of India (Sebi) mandate from last year to streamline funds and their categories.

In your case, the liquid fund has become a money market fund. This means the fund can now invest in debt securities with average maturity of up to a year. Previously, as a liquid fund, it could only invest in instruments with average maturity of up to 90 days. This change means that the average maturity of its portfolio could increase over a period of time.

This implies that the risk profile of the fund has gone up marginally. As an investor in this fund for contingency purpose (that is, without a specific time frame in mind), this change should not bother you. So, unless you are planning to take out this money within the next three months, this change should not have a material impact and you should continue with the fund.

I retired in January 2018, and received a lumpsum of ₹ 10 lakh. I want to invest it to get monthly income after five years. For now, I have another job and am likely to be fully employed for another 7-8 years, by which time I will be 70 years old. I have been investing in equity mutual funds to build a retirement corpus. —Bala

While building an investment portfolio, one takes into account several factors. All these factors contribute, to some degree, to determining the risk profile of the portfolio and the investments contained therein. In your case, there are different factors that pull in varied directions. On one hand, your age (post-retirement, early 60s) suggests that you should have a low-risk portfolio. On the other hand, the fact that you still have a steady income and don’t need money from this investment for another five years at least tells me that taking some risk is fine. A third factor is your current investments in your retirement portfolio being made up of equity funds, which suggests that you have sufficient exposure to equities already. The combination of all these factors puts the portfolio designer in some quandary as to how to allocate your money in your portfolio.

Considering all the factors, I think it would be wise to leave this decision to a set of astute fund managers. I think investing in a set of 3-4 equity-oriented hybrid funds (balanced funds) would be the right call for you. I would recommend that you divide your corpus into parts and invest in funds such as Adiya Birla Sunlife Equity Hybrid ’95 fund, HDFC Balanced fund, ICICI Prudential Equity and Debt fund, and L&T Hybrid equity fund. These funds will allocate your money across asset classes depending on market condition and are ideal for a 5-year time frame. After this period, you can move them to pure debt funds or start a systematic withdrawal plan for your expense needs.

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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com

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