Ask mint money | Conservative investors should consider debt MFs and FDs

Ask mint money | Conservative investors should consider debt MFs and FDs

I want a corpus of 2.50 crore after 10 years. I have a lump sum to invest but my investing period is four months only. How much should I invest each month? Is it safe to invest in Reliance India Realty Opportunities and India Advantage Fund-Real Estate Series 2 by ICICI Venture? Suggest some funds in which I should invest.

—Shrikrishna Agrawal

To build a corpus of 2.5 crore in 10 years, you would need to invest a lump sum of around 80 lakh today (assuming a compounded annual growth rate of 12% over the next 10 years). The investment vehicles that you have cited are not mutual funds (MFs), but private equity funds that are targeted towards high networth individuals. Such funds are set up to invest in real estate projects across the country and profits are shared with the investors. Since they are restricted to a particular risky segment of the economy, they should be categorized as high-risk investment vehicles. If safety of investments is important for you, these might not be the right avenues. You will be better off sticking to broadly diversified MFs that might not offer the same excitement as these funds, but can still yield good returns. If you are still tempted to go with one of these funds, I would advise that you have a limited exposure (not more than 25% of your portfolio) to them and invest the rest in regular MFs that you can choose from the Mint50 list of funds.

I have 1 lakh in my savings account. I am a conservative investor and want to invest in debt MFs. Suggest some funds and the time frame I should consider for better returns. —Kamlesh Singh

Conservative investors in India typically have two options to invest their money—fixed deposits (FDs) or debt MFs. FDs offer a guaranteed return (guaranteed by the issuer of the deposit) for a fixed tenor of investment. Returns from debt MFs offer no such guarantees, though their returns have historically been on a par with the prevailing deposit rates at the time of investment. Returns from FD, however, are taxed at the marginal rate of investor’s income. Debt MFs are taxed at the marginal rate for short-term gains (less than one year), and are taxed at 10% without indexation and 20% with indexation for long-term gains. Hence, debt MFs have advantage in terms of post-tax returns for longer tenor investments. So, if your income falls in a higher tax slab, and your tenor of investment is longer than a year, it is very likely that your post-tax return will be higher from a debt MF than an FD. Templeton India Short-term Income fund has been a good performer in this category. UTI short-term income and Reliance Short-term funds are also good choices for investments among debt MFs.

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