Going forward, investments in tax-saving funds would attract 10.4% capital gain tax on redemption
Tax-saving mutual funds have the lowest lock-in period (3 years) and the highest return potential (though the returns are not guaranteed)
What are tax saver schemes and how do they work?
Section 80(c) of the Income-tax Act provides various ways in which taxpayers can reduce their taxable income by up to Rs1.5 lakh. Various deductions are provided under this section, such as: repayment of principal for a home loan, education expenses, and various investment options. The last category includes instruments like tax-deductible bank fixed deposits, Public Provident Fund, and tax-saving mutual funds. Among the investment options tax-saving mutual funds are, arguably, the best option. They have the lowest lock-in period (3 years) and the highest return potential (though the returns are not guaranteed). Practically every mutual fund company offers a tax-saving mutual fund. If you invest in one of these funds, you can claim that amount as a deduction from your taxable income (subject to the cap) and pay lesser taxes. The money will not be available for withdrawal for 3 years (lock-in period), after which it can be withdrawn with a 10.4% long-term taxes (with cess) on the gains. ICICI Prudential Long-term Equity fund and Invesco India Tax plan are good tax-saving funds to choose from.
I want to invest in European markets. Can you suggest some funds that might be worth investing in global markets?
There are very few funds that invest with a special focus on the European markets. All these are of recent vintage, having been launched in 2014. Their performances thus far have not been great, but if you think this is a good time to get into that market, these funds could be for you.
Franklin Templeton has the feeder fund called Franklin European Growth fund, Invesco has the Invesco India Pan European Equity fund, and Edelweiss has the Edelweiss Europe Dynamic Equity offshore fund. Investing in such funds for diversification purposes would be a good idea, but limit your exposure to no more than 10% of your portfolio to such investments.
I am 56 years old. I have been investing in mutual funds for the past 12 years. My total corpus is Rs45 lakh. As I am nearing retirement, I want to move to less risky debt funds. How should I allocate this money? Should I also move some money to fixed deposits?
The fact that you are nearing retirement, does not mean you should fully de-risk your portfolio immediately. At 56, you should not stop investing to build wealth. However, what this does mean is that you should de-risk a part of your portfolio since you will likely start withdrawing from your corpus soon and you don’t want that portion of your money to be at risk in the market (since you need it for your cash flow). One approach is to take 3-5 years of expenses and move it to debt funds (either liquid funds or short-term debt funds or a combination of the two), and leave the rest of the corpus in a balanced portfolio that is in keeping with your current risk profile (aggressive, in your case). Every year, you can move the equivalent of another year’s living expense to your short-term portfolio while leaving the remaining to benefit from market growth. This way, you will have certainty of income for the near term future, while your medium to long-term money stays invested and continues to benefit from equity-market like growth.
I was an non-resident and returned to India permanently on 22 October. I have invested in SIPs worth Rs95,000 and Rs1.76 lakh as direct investment in more than 10 schemes. Because there are too many funds in my portfolio I want these schemes only in my SIP portfolio: BSL Frontline Equity Fund DP; Canara Robeco Emerging Equities Fund; Mirae Asset Emerging Bluechip Fund; ICICI Prudential Balanced Fund. I am 35 years old, married and no children. My target is wealth creation with reasonable risk and I plan to hold my SIP investment for the long term.
—Name withheld on request
Your current status, given your permanent employment, is as a resident individual. Hope you are getting your KYC records updated with this information. Once this is done, your NRE accounts cannot be held as such and would need to either be closed or converted to resident savings account (if the bank allows). This could also entail you to update the linked bank account in your mutual fund investments.
Coming to your portfolio, yes, there are indeed many funds in your portfolio and can use consolidation. One part of it is to work with your current investments, and other to ensure that the future SIPs are in line with this restructuring. For your current investments, I recommend that you consolidate them into not more than 5-6 total funds (apart from the closed-ended funds). The fund choices you have for SIP are pretty solid selections. I would add a good multi-cap fund such as Fraklin India Prima Plus to the mix for the remaining amount.
Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.
Queries and views at firstname.lastname@example.org.
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