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If your income is erratic, make use of STPs to continue investing regularly

Whenever you find yourself with surplus cash, park it in a liquid fund and setup a systematic transfer plan from this liquid fund to an equity fund

I work in the entertainment industry. My monthly income varies a lot. In some months I get paid lakhs of rupees and there are months when no money comes in at all. I still manage to earn more than Rs15 lakh a year. In such a scenario, how should I plan my investments in mutual funds as I fear that in some months my systematic investment plan (SIP) instalments may not get debited due to lack of funds in my bank account. I can save nearly Rs5 lakh a year but there can still be months when there is no money in the bank. I have no near-term financial goals. Kindly advise.

—Subrata Mukherjee

The first question that needs to be answered is if you are able to save Rs5 lakh a year, then what has been happening to that money until now. If the problem is that when it remains in the bank account there is a tendency to withdraw it and spend it on non-essentials; then that problem can be solved by using mutual funds and the systematic transfer plan process. The way it works is, whenever you find yourself with surplus cash in your account, you can move it quickly to a liquid fund where it will stay parked and earn returns for you. And you can setup a systematic transfer plan from this liquid fund to an equity fund of your choice and you start to invest money in a systematic fashion just as you would if you were doing an SIP. For example, you can periodically move money (as additional investment) into HDFC Liquid fund, and setup an STP into HDFC Balanced fund (a relatively conservative choice) or HDFC Equity fund (a more aggressive choice).

I have been investing in following funds via SIP—Birla Sun Life Frontline Equity Fund DP (Rs2,500); Birla Sun Life Monthly Income Plan II - Wealth 25 Plan – DP (Rs20,000); Birla Sun Life Top 100 Fund – DP (Rs5,000); Canara Robeco Emerging Equities Fund – DP (Rs10,000); ICICI Prudential Balanced Fund – DP (Rs10,000); ICICI Prudential Liquid Plan – DP (Rs2,000); ICICI Prudential Long Term Fund – DP (Rs2,000); ICICI Prudential Value Discovery Fund – DP (Rs2,000); Mirae Asset Emerging Bluechip Fund – DP (Rs5,000). I have also invested Rs1 lakh as lump sum in Axis Dynamic Equity Fund—Regular Plan and Rs48,850 in Canara Robeco Capital Protection Oriented Fund - Series 6 - Regular Plan. My goal is to invest Rs40 lakh in mutual funds in 4 years and I also have a bank fixed deposits of Rs30 lakh in an NRE (non resident rupee) account (no tax deducted at source (TDS)). For this year’s SIP investment (58,500x12 = 7,02,000), I have money in my NRE account. As per the above SIPs, in 4 years I will be able to invest about Rs28 lakh. I will be left with a surplus of Rs12 lakh that needs to be invested in the next 4 years. Please suggest any new funds or correction in my existing SIPs or increase in SIP of any of the existing schemes so I can invest Rs40 lakh in 4 years. My goal is wealth creation with high return. My risk appetite is moderate and time horizon is 6-10 years. I am willing to be an aggressive investor as my horizon is more than 5 years.

—Name withheld

Currently, you are investing in an SIP portfolio for Rs58,500 every month of which about 65% is going to equity (either in the form of direct equity funds or as part of hybrid funds) and 35% going to debt. Given that you have a moderately aggressive risk approach to your investment and given your long time frame, you can go for an asset allocation of 70:30 between equity and debt. We can accomplish this reallocation of assets easily and effectively by channelling the additional SIP money that you are bringing in. Given that you are planning to invest Rs12 lakh more in 4 years, that translates to Rs3 lakh more a year or Rs25,000 more every month. If you distribute this money as Rs21,000 to equity funds and Rs4,000 to debt funds, you will see that every month you will be investing Rs58,500 in equity and Rs25,000 in debt, making for a 70:30 split between the two asset classes.

In terms of where to invest this money, I would suggest that you increase the allocation to your existing funds. Since you already have nine funds in your portfolio, I would not want to add more funds to it. You can add Rs12,500 each to the Frontline Equity Fund and the Value Discovery Fund. For the Rs4,000 in debt funds, you can add on to the dynamic bond fund in the form of ICICI Prudential Long Term Fund.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

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