August 23, 2016

Mutual Fund Investors in India – Some unknown mistakes

I am writing this post after receiving so many doubts and questions related mutual fund investments. The Mutual Fund Investors in India commit so many mistakes which they never notice them as mistakes. Hence, I thought to list them in detail.

# Invest because of peer comparison

Recently I received a mail from a reader that his friend has invested in equity mutual funds since 5 years. Returns are around 20%. His friend showed his fascinating investment history to this guy. Therefore, now he is also very much eager to invest in mutual funds (specifically in equity mutual funds) where his friend invested.

But he does not know why his friend investing, what is his risk taking capacity, what prompted him to invest in equity mutual funds since 5 years and whether his style suitable to him or not. A blind following and starting of investing in equity mutual funds or in any product.

Such type of investment is called as decisions based on peer comparison. We never understand what is best for us. But we compare our friends, relatives or colleagues and jump into investing.

It is such a dangerous mistake, which many Mutual Fund Investors in India unable to understand. I tried to represent such acts in below image.Mutual Fund Investors in India and Peer Pressure

# No specific financial goals set

First, I receive queries regarding which product to invest. They need a specific product name from me. However, when I question them about the time horizon of the goal, then their answer is so random that it scares me to suggest anything.

The tenure of their financial goals is like 5-10 or 15-20 years away from today. But sadly they don’t know that there is a BIG 5-year gap in their assumptions of goals.

It is hard to suggest or guide anyone who don’t know the exact tenure of their financial goals. However, in a few cases, I can understand that we have to assume but can’t specify perfectly. But what if all goals are so random.

# Attraction towards short term equity returns

Just observe the below image.

HDFC Top 200 Historical Returns 2016

Here, I took HDFC Top 200 as an example. Because it is in the market since 3rd September, 1996. You notice that returns of 3 months are shown as 16.88% and 6 months as 30.5%, which is very, very impressive than the returns of 5 years (14.46%), 7 years (13.58%) and 10 years (14.57%).

Six months returns showing 30.5% returns. Which product in India gives us 30% returns for 6 months of investment? So we MUST invest in HDFC Top 200 Fund, am I right?

Hold on….this is where many of us make mistakes. We forget the first thumb rule that equity investment is for long term (in my view if your goal is 5+ years). The second mistake what we do is eye-catching short term returns. So we jump and invest in such equity funds with an expectation of around 30% for 6 months of investment.

We assume that equity is not good for the long term. But definitely best products for the short term. However, the reverse is true. When you assume a 30% return for 6 months of investment, you must be ready to expect the negative return of 30% also. Are you ready? If so, then go ahead. Either you receive +30% or -30%. Sadly we fail to understand the risk and volatility in such short-term equity market.

Note-Less than a year returns are absolute returns and more than a year returns are expressed in CAGR.

# Holding too many funds or too less funds

I noticed that a few have 1-2 financial goals. But holding 10-15 equity funds. But at the same time, few holding only one equity fund like sector funds. I am not against the person who hold a single fund like an equity-oriented balanced fund, which gives you enough exposure to debt and equity. However, I found that few are holding sector funds as they are very much optimistic about the particular sector. But they forget that any negatives about particular sector means they must be ready to bear the heat of negative returns or loss in their portfolio.

Holding too many funds create overlapping. At the same time, holding a single fund for the sake of fancy returns is also not good.

# No proper Asset Allocation

In 99% of mutual fund investors, I found no proper asset allocation. It is may be due to  illiteracy towards investment or scarcity of proper guidance. I found that many investors investing 100% of their investable surplus in equity. Because their goals are long term. Hence, why to satisfy for less by investing in other asset class (like debt).

During the period of the bull run, all experts or funds give you positive news. However, the real test will be when there is a downtrend in the market or free fall in the market. During such falling market, the asset allocation will protect you.

If you have the proper debt to equity exposure based on your timeframe of goal, then it is always the best investment strategy.

# No proper expectation from investment

Everyone running behind BEST returns. But they don’t know or hard to fail to define what is BEST return. For me, it may be 10%, for others best returns means 30%. First, you must define your expected return from your investment. Also, such expected return must not be any fancy number. It must be realistic. For example, from equity, you can expect a 12% return (for long term goals) and from the debt, it may be around 7%.

If your funds are generating the expected return, then you no need to worry about other funds star ratings or returns. Because you are getting what you are expecting. So why to worry??

# Debt Funds are safe but equity funds are unsafe

It is the biggest mistake many investors believe and start to invest in debt funds like Income Funds or Long Term Gilt Funds. However, while selecting debt funds, you must concentrate on two aspects.

  1. Modified Duration-It is measured in years. It is the measurement of interest rate sensitivity of a fund. Let us say, if the modified duration of a fund is say 4 years, then for every 1% interest rate movement, the bond price may move 4%. Higher the modified duration means higher the volatility.
  2. Average Maturity-This means the average maturity period of a portfolio of all bond papers the fund is holding. The higher the average maturity, higher will be the interest rate risk.

So you must understand the risk involved in debt funds. Funds like Income Funds or Gilt Funds are riskier than Short Term, Ultra-Short Term or Liquid Funds.

However, it does not mean that Short Term or Ultra Short Term Funds are safest. But the volatility will be lesser. We may easily compare the volatility of Liquid Fund to Income Fund from below images.

Volatility of Liquid Funds

I selected above fund because I can show you the return movement of long term. Because this fund was launched in the year of 2001.

Volatility of Gilt Funds

See the return lines of Birla Sun Life Gilt Fund. Compare this volatility with the liquid fund volatility. You notice the difference. Below is the modifified duration and average maturity of both liquid fund and income fund.

Modified Duration of Reliance Liquid Fund-Cash Plan-0.11 Vs Modified Duration of Birla Sunlife Gilt Fund-8.33.

Average Maturity of Reliance Liquid Fund-Cash Plan-0.12 Vs Average Maturity of Birla Sunlife Gilt Fund-15.91.

Hence, if you have enough equity exposure, then try to restrict your investment to short-term or ultra short-term debts or to the maximum of Gilt Short Term. But don’t go beyond that.

Recently, I came across this below eye catching advertisement about Liquid Funds.

Liquid Funds Weekend Investment

This is something called weekend investment. Seems to be eye catching. Such returns may or may not be possible. However, the advertisement perfectly shows how much returns you will generate. Liquid funds over a year may generate 9% or less than your savings account also. The above advertisement not explaining of on what basis they arrived at this final value. So never ever believe on any one. Especially if someone claiming GAURANTEED returns from mutual funds (whether it is debt funds or equity funds).

118 Comments

  1. Dear Basu,

    Your blogs are really helpful and informative. Keep sharing your thoughts.

    I am planning to start a separate MF portfolio for my wife. She currently has savings of 1 lakh and the investment time frame is 12 years. Planning to increase the amount slowly.For Debt i am planning to invest seperately in PPF and BL Sun life MIP II wealth 25 Plan

    1) Currently I have shortlisted below funds by referring Value research online ,Money control and various blogs
    Large Cap (50%): BL Sunlife Top 100 or Mirae Asset India opportunities
    Mid Cap (25%) : Hdfc Mid Cap opportunities or Principal emerging blue chip fund or Mirae asset blue chip
    Small cap (25%): Franklin Smaller cos or L&T emerging business funds

    Please review and provide your suggestions on the above list and any other funds apart from the above list is absolutely fine.I am going to choose one from each large/mid and small cap based on the suggestions.

    2) Is Bulk investing good idea and is it the right time to invest or should we need to wait couple of months for MF consolidation

    3) For some of the funds (Hdfc Mid cap,HDFC Top 200,BLSL Frontline quity,Icici discovery & HDFC Balanced) the AUM size is > 15000 CR. Is it going to be any risk due to increase in AUM or this AUM increase is not a concern.

    Thanks
    Dandu

    Reply
    • Dandu-1) Goal is 12 years, then how can you manage with PPF? Also why MIP where you find some equity portion? Why not pure debt funds like Short Term or Ultra Short Term Debt Funds? Regarding your choices of equity, my suggestions are BL, HDFC and Franklin.
      2) If the goal is of long term and did proper asset allocation then you can invest NOW also.
      3) In what sense you felt the AUM size is BIG? Compare with other funds of global, you find where you are.

      Reply
  2. Hi Basu Sir,

    My Father is 58yrs old , has retired few months back and received around 3lacs as his entire life saving. Now he wishes to have a monthly income for reasonable self sufficiency.

    But i guess, putting this money in Banks alone wont generate enough income. I am thinking about POMIS but Can you please suggest other a suitable investment products as well which can give reasonable and stable monthly returns ?

    can you please help me with this?

    Reply
      • Hi Basu Sir,

        Thanks for your valuable advice. But as he is 58yrs old, he is not senior citizen,
        so I guess he is not eligible for next 20months atleast.

        1. So can you please suggest for alternate available products for this duration?
        2. will it be a good idea to invest in any MIS mutual funds? If yes, which funds should are dependable?
        Coz For me security and stable income for him is main concern

        Really looking forward to your advice?

        Thanks

        Reply
        • Kapil-If his concern is to protect the principal and also depending on the monthly income, then Post Office MIS is fine. MIS of MF will not guarantee you the return. Also, such funds have small exposure towards equity. Does he ready for such volatility?

          Reply
          • Okay Basu sir…Thank You for your advice.

            Reply
  3. Dear Sir,

    This is my portfolio. I am investing 60k per month in MF for past 1.5 years, and I want and I will invest till 2028. Also, my husband is investing 3 Lakhs in debt relates (PPF/FD’s/NPS etc), so in total equity exposure of 720000/- and debt of 300000. Is it the right way to go sir? Would greatly appreciate your inputs.

    1. SBI Blue Chip – 15000/-
    2. AXIS ELSS – 5000/-
    3. SBI Pharma fund – 10000/- (Highly risky, but i am prepared to believe in Pharma as a sector)
    4. DSP Blackrock micro cap – 10000/-
    5. Mirae asset emerging bluechip – 10000/-
    6. Franklin smaller cos : 10000/-
    (or)
    7. Principal emerging – 10000/-

    with respect to funds 6 & 7, i invest every alternate months, so 6 month sin Franklin and 6 months in principal. I have also checked the overlapping of MF’s and I dont see big overlapping. Would greatly appreciate your comments sir.

    Reply
    • Ramya-Avoid sector funds. Whether your PPF and NPS be ready for withdrawal exactly at 2028? If so then go ahead. Otherwise those products not required. Also, in NPS which option you selected?

      Reply
      • Thanks for ur kind response, PPF matures at 2029. So instead of sector funds, can I add the monthly amount allocated for sector in to SBI blue chip sir? My NPS account is tier 2 and my husband’s is Tier 1.

        Reply
        • Ramya-Yes, that’s better to skip sector and infuse in SBI. Regarding NPS, it is illiquid product. So think before jumping into investment.

          Reply
          • Sure Sir, Appreciate ur kind response. Can I invest in debt fund instead of NPS?

            Reply
  4. Hi Basu,

    Thanks for this informative article.
    Below are mutual funds that I own as of now with their allocation.

    BNP Paribas LT Equity Fund(G) 1000
    Franklin India Prima Plus Fund(G) 1500
    HDFC Balanced Fund(G) 12000
    SBI BlueChip Fund-Reg(G) 1500

    Which makes the total SIP as 6000

    I am planning to buy 2 more funds with SIP of 4000 (making total as 10000)

    Mirae Assest Emerging blue chip
    DSP Blackrock micro.

    1. Please suggest if I could switch from BNP Paribas LT Equity Fund to above 2 new funds or should should I countinue with previous 4 funds and new 2 funds.

    2. Also, kindly suggest If I can increase the SIP of any of these existing funds.

    Thanks You.

    Reply
      • I am looking for holding these funds upto 12-15 years.
        That also depends on its performance going ahead..

        Reply
        • Pankaj-In that case where is your debt portfolio? What asset allocation you preferred?

          Reply
          • Thanks for your reply.

            Goals:

            1. buying a car in next 2 years – 5-6 lakhs
            2. children education marriage in next 15-20 years – 40 lakhs

            for assest allocation, 20:80 as debt:equity

            Reply
            • Pankaj-1) for this goal, equity is not at all required.
              2) Whether the said asset allocation is maintaining?

              Reply
              • No, it is not being maintained..I just have above 4 mutual funds available.
                Just wanted to ask
                1. shall I switch from BNP Paribas LT Equity Fund(G) to Mirae Assest Emerging blue chip with 2000 as SIP

                2. May i go ahead and buy one more mutual fund – DSP BR Micro with SIP of 1500

                3. Shall I increase my SIP in SBI Bluechip from 1500 to more for 12 years of investment.

                Reply
  5. Hi Sir,

    I have been investing in Axis long term fund(ELSS) since 2 years. I have observed that the fund is not performing well since 1 year.what could be the reason of AXIS ELSS not performing well in last one year as compared to other funds in TOP 10 for one year return.Although it is one of top three in 3 years returns category.?Any significant management changes?

    Reply
    • Neha-Whether you compared the benchmark it is following? Don’t compare peers but check the benchmark performance and let me know.

      Reply
      • Yes i compared,it is not following.It is under performing and not beating the benchmark.

        Reply
          • Since a year sir. That why I wonder that what happened suddenly with this fund . when other funds are doing good in bull market, this fund is giving only 7-8 % return in last one year. In bull market at least we can expect more than 10 % return. Right sir??

            Reply
            • Neha-It is marginal negative trend in Axis. Look for more than 1 year returns. I still suggest you to continue this fund. No need to worry. Don’t change your return expectation due to market boom or peer fund performance.

              Reply
              • Sure Sir. Thank you so much for suggestion.

                Reply
  6. Sir

    Is it mandatory for a professional advisor ( CA, CFP etc.) to register with SEBI as Registered Investment Advisor? Is it applicable to other normal distributors as well?

    Is it illegal to be a distributor of MF without registering as RIA with SEBI? (Specially, when one charges fees from customers who are interested in direct plans only.)

    Is it worth registering with SEBI as Registered Investment Advisor? What about increase in compliance cost?

    Please clear these points

    Thanks

    Reply
    • Ritesh-Those who charge FEE must register with SEBI as RIA. Worthiness of registration will come into picture when the RIs effect reported after few years. As of now wait and watch the game.

      Reply
      • Thanks sir for reply

        I have cleared MF VA examination and would like to sell MF schemes. However, selling mutual fund also involves advising a prospective customer about how mutual funds work who may not be familiar with stock market. Also, the customer may be reluctant to pay fees only for advice but may be comfortable with commission earned by distributor.

        So is it not possible to charge fees from customers who want to invest via direct plans and commission from customers who are not well versed with mutual funds at the same time? It seems SEBI’s dictate will only discourage new distributors to enter mutual fund industry.

        Reply
          • It seems there is no clarity yet

            In the meantime, can I apply for ARN and start selling MF schemes? I am asking this question because I don’t want to commit any regulatory mistake at the beginning of my career as MF distributor.

            Can you also guide me whether I need to register with each MF or I can sell MF schemes of multiple MF via platforms (without registering with MF)?

            Thanks

            Reply
            • Ritesh-You can register and start selling. If you don’t want to work under any broker, then you have to associate with individual AMCs. Otherwise, you can tie up with NJ India or FundsIndia and start business also.

              Reply
              • You cleared my doubts

                Thanks a million

                Reply
  7. All MF has two main plan : 1. Regular and 2. Direct
    What are these? and which is best Regular or Groth?

    Reply
  8. Dear Sir,
    I had invested in UTI pension 1k SIP, after three 3 years when the returns are good, last year increased to 3k.I was checking regularly monthly statement in mail and fund was doing ok to my satisfaction. Routinely I was checking my bank statement but there were no deduction of SIP except one increased from 1 to 3k. Shocked and checked with UTI they said SIP rejected due to no mention of type of A/C (SB or otherwise).When I asked for the solution, they said give one more check and new form then it will be corrected. I did that. But to my bad luck same thing happened and after sending many mails and calls they are telling to re do it again. The advisor also insisting to give new form and check as a new purchase again. He is assuring all the lost months will be covered.(???!!)
    In the process I lost 9-10 month investment and then same problem repeating because it is not updated in their system bank a/c type.
    Therefore, my queries are
    1.I didn’t enter in to their computer but it is their employee and hence the mistake
    2.If SIP not realized they should intimate rather than sending a false statement.
    3.How many times we keep submitting like this and presently I am abroad and cannot follow up.
    4.Is there any way I can update myself online
    5.If nothing works, I will just redeem and close forever.

    Kindly advice.

    Reply
    • Jose-You can use online account of UTI AMC by creating login and all stuffs and then register a SIP. Otherwise, switch to FundsIndia, create account with them (it is free), and then register the SIP. It is all because of NACH mandate issue. Many are facing this issue.

      Reply
      • Thanks a lot sir !

        Reply
  9. Dear Sir I have taken a loan of rs 35 lac from ICICI BANK recently at an interest rate of 10.5%. I have rs 5 lac spare for a period of 12 to 15 months. Where should I invest this amount so that it can beat the interest rate of my loan.
    Also apart from this amount I have to invest an amount of rs 2lac for my two niece for Term of 15 to 18 years. Please suggest where should I invest this money to get the best and safe returns. This 2lac is apart from that 5lac.

    Reply
    • Rakesh-It is impossible (as per me, but there may be few so called EXPERTS who may give guidance and may risk your money) to beat 10.5% return within a span of 12 to 15 months. Sorry….BEST and SAFE always need more sharing from you. May I know the definition of both?

      Reply
      • Best means good rate of interest and safe means lesser risk.

        Reply
        • Rakesh-That rate of interest I want in terms of numbers. LESSER means? Sorry for asking so many questions and it may irks you. But I have to understand you.

          Reply
          • No problem Sir. Actually I want a lumpsum amount around Rs 20 lac after 18 to 20 years for my two nieces. One is two year old and other is just 3 months. We will need this money for their higher education that time. I have Rs 2 lac is this amount sufficient for my target or do I need more for it. If so please suggest how much do I need to achieve this. If you need to know anything else please ask.

            Reply
            • Rakesh-It is hard for me to say something without knowing what in middle you do.

              Reply
              • Means ?

                Reply
                • Rakesh-Investing NOW and forgetting for next 18 years is not a wise idea. Hence, are you be able to review on your own?

                  Reply
                  • Please suggest what should I do?

                    Reply
                    • Rakesh-Are you comfortable with equity mutual funds?

                    • Yes I am.

                    • Rakesh-Then if your time horizon is more than 10+ years, go with a single equity-oriented balanced fund like HDFC Balanced Fund.

  10. Hi Basu Ji,

    I am currently investing 7K in PPF and SIP for following
    2000 Tata Balanced fund
    1500 Mirae Assest Emerging blue chip
    1500 Franklin Indian Prima plus
    Apart from this for my short term goal , I invested lump sum in ICICI Arbitrage fund as well.
    I am constantly following your blog and came to know that my portfolio is poor for 15 years time horizon.
    it should be 30:70 ratio.
    So for 15 years If I modify my investment in below manner:
    7k PPF
    7K MIRAE ASSET
    7K ICICI bluechip or franklin bluechip
    Remove tata balanced and franklin prima fund.
    Is it fine or do I need to still modify it?

    Br, Rahul
    So I continue my PPF investment and need to remove SIP

    Reply
  11. I am following your blog since many days ..its really informative and i decided i will correct my mistake whatever i have done .Thanks for guiding us. now please give your review on my future investment which i have made after reading your blog .
    A) Short Term Plan (For 1 years and below) : 50.0%
    1. MIP Aggressive : Birla Sunlife MIP II Wealth 25 Plan (Growth-Direct) 16.7%
    2. MIP Conservative : Birla Sun Life MIP II -Savings 5 Plan (G)-Direct 16.7%
    3. Ultra-short term debt fund : Franklin India ultra-short term bond fund super Institutional plan. 16.7%
    4. Tax Shield: Franklin India Tax shield fund. As need basis ( I know it is come in long term category but I don’t have any income other than mutual fund returns ,if my return will be more than my tax slab then I will consider ELSS)

    B) Medium Term Plan (For 3 to 5 Years ) 37.5%
    1. Balance fund :HDFC Balanced Fund – Direct Plan (G) 37.5%

    C) Long Term Plan ( Above 5 Years) 12.5%
    1. Balance fund : HDFC Balanced Fund – Direct Plan (G) 4.5%
    2. Mid Cap :HDFC Mid-Cap Opportunities Fund (G) 4%
    3. Multi Cap : ICICI Prudential Value discovery Fund-Direct 4%

    Questions :
    1. Above my portfolio is good or need to change?
    2. What are general precautions and key issues to be taken care while Investing in Mutual Fund.
    3. Is this Portfolio conservative and risk averse. Main intention is to minimize losses in case of Market crash.
    4. Taxes on Returns in Short-term debt fund will be as per the Tax slab for resident Indian.?
    5. Is the Selected Balance fund in which majority of Investment done safe and will ensure good returns.
    6. above percentage of 40 lakhs..one time investment now…. whenever get chance i will do SIP in long term plan ,is it ok ?

    Reply
    • Amruta-For 1 year or below goal, even debt funds are worst (forget about equity). I am not sure what prompted you to invest in all such MIPs, Ultra Short Term Funds and ELSS (which comes with 3 year lock in). Debt funds are tax efficient over FDs or RDs only when your time horizon is more than 3 years. Otherwise, simply use bank RDs or FDs.
      For Medium Term goals, I recommend Ultra Short Term Funds ONLY, but not a single % of equity. What is your time horizon of long term? Where is the asset allocation here (debt:equity)?
      Who guided you for such disaster? Please be cautious and first understanding of what you are doing before jumping into any investment. Don’t follow anyone blindly (including ME).

      Reply
  12. Hi

    Please comment on my portfolio. Am investing through Mutual funds via SIP since 5 years in the following funds for my 2 Goals given below (approx 20000 p.m)

    1. My Financial Goals(Children Education and marriage) Timeframe 10+ years

    Two large cap funds for each kid

    1.UTI Equity Fund
    2.Franklin India Blue Chip

    Pls note: Am planning to replace FT India Bluechip Fund with Franklin India Prima Plus fund for better returns. Your Opinion on this pls?

    Apart from this I am investing in Sukanya Samriddi Scheme for Debt portion(as am not interested in Debt MF;s) for the above goals as an additional amount seperately

    2.My Financial Goals(Retirement Corpus)Timeframe 20 years

    Four Multicap Funds

    1.L&T Equity Fund
    2,Quantum Long Term Equity Fund
    3.IDFC Premier Equity Fund
    4.ICICI Prudential Dynamic Fund.

    Pls note: Am planning to replace ICICI Prudential Value Discovery Fund in place of Dynamic Fund so that I can have few more extra returns and also one value fund in my multicap category. Your opinion pls?

    Apart from this I am contributing to EPF and Bank FD’s for Debt portion for the above goals(as am not interested in Debt MF’s)

    And also am having term cover and health cover from my employer

    Pls comment on my portfolio

    Thanks

    Reply
    • Satish-Sadly financial planning can’t be done on such platform.

      Reply
      • Ok thanks for the reply, Can you comment on the funds if possible

        Reply
        • Satish-2-3 funds are enough to create a best equity portfolio. I am not sure who guided you. But think seriously.

          Reply
  13. HELLO SIR,

    I AM INVESTING RS 2000 /MONTH IN SBI MUTUAL FUND REGULAR GROWTH PLAN SINCE LAST 6 YEARS.

    IN THE MONTH OF APRIL 16 I HAVE REDEEM FROM THE SAME AFTER 3 YEARS LOCK IN PERIOD. I GOT GOOD RETURNS.
    BUT ONE THING I WANT TO KNOW WHETHER THIS IS EQUITY OR DEBT.

    Reply
    • Nirmal-Without knowing the fund name, how can I suggest you?

      Reply
      • sir
        name of the fund is SBI MAGNUM TAX GAIN SCHEME REGULAR PLAN GROWTH

        Reply
  14. Hi Basu,

    I am planning for my daughter who is 6 months old. The Goal is for next 15 years and I have already started investing Rs 60K per year in PPF.
    Apart from PPF, I am thinking of investing (SIP) in below 2 MFs also. Please do advise

    Tata Balanced Fund – Rs 5000/-
    Mirae Emerging Blue Chip Fund – 2000/-

    For other goals I have invested in (10 years )

    ICICI Blue Chip Fund – 3000/- (SIP)
    Axis Long Term Equity (ELSS) – 5000/- (SIP)
    ICICI Pru Long Term Equity Fund (ELSS) – 100000 (Lump-sum)

    Reply
    • Koustav-If for a 15 years goal debt allocation is already there through PPF, then why you selected Tata Balanced Fund again? The asset allocation for 15 years goal must be anywhere like 30:70 in debt and equity. Hence, avoid Tata Fund and include one large cap (You can invest in same ICICI Bluechip).
      Regarding, 10 years goal, the asset allocation must be around 40:60 in debt and equity. For this again one large cap and a mid cap in equity category and for debt, you can use ultra-short term debt funds. However, if your concern is tax saving than you can retain any one among ICICI or Axis.

      Reply
      • Hi Basu,

        Appreciate your input.
        What is your view on below large cap funds, when I don’t want to put my eggs in same basket (ICICI Blue Chip Fund).

        1. SBI Blue Chip Fund
        2. Birla Sun Life Front Line Equity

        Reply
        • Koustav-One large cap fund is enough. If you start to do, then it creates portfolio overlapping but not diversification.

          Reply
  15. Dear Basu,
    I am planning to invest lump sum 10lac in to two funds Tata balanced and Franklin India prima plus 5 lac each. My son is 9 yr. and this for his education. I will stay invested for 10+ years.
    I am ardent reader of your blog, and with lots of interaction with questions like this, I have built my portfolio as per your guidance in the blog
    I have term cover, debt in PPF, Franklin low duration fund and one LIC Jevan Anand after surrendering all other lic policies(11 yrs up,4 more years for maturity) , UTI pension fund since 2013.and FD of 3lac as emergency fund
    Kindly advise for my venturing in to equity, should it be lump sum or STP route.
    If I split in to HDFC and Tata balanced is there any overlap?
    Thanks in Advance

    Reply
    • Ravindra-For a goal of 10 years, I suggest equity to debt allocation in ratio of 60:40. For this a single Tata Balanced Fund is enough. Otherwise, use one large cap fund like Franklin India Bluechip Fund or Birla Sunlife Frontline Equity Fund and one ultra short term debt fund in the ratio I mentioned. No need to include any other funds. Your goal is long term in nature. Hence, go with one shot lump sum investment.

      Reply
      • Thank you very much Basu,

        Reply
  16. Sir, this may not be related to the content above but I would like to have your opinion in this. A couple of days back i came close to losing my life when riding in a bicycle and that made me thinking about term insurance plan. I browsed many sites and finally zoomed in on ICICI Prudential iProtect Smart – Life, which guarantees 3 crores payout in any unfortunate circumstances with yearly premium of 24k. Would 3 croressuffice taking inflation in to account or do we need to increase it to 5 crores?

    Would appreciate your thoughts on this sir.

    Reply
    • Hi Narayan,

      I am not a planner. Just expressing my thoughts. As experts recommend to have a term insurance of 10-15 times of your annual salary, so you can calculate it accordingly. Also, somewhere I read that if you taking huge amount of term insurance then it’s better to split between insurance companies because any company can pay small amount of claim instead of big amount. Also do thorough research on term plans wrt to claim settlement err ratio, claim settlement in amount etc.

      Reply
      • Narayan-Do you feel if you break Rs.1 Cr term insurance into Rs.5 lakh each of term insurance, then it is easily settled by insurance companies? It is a complete myth. Also, in your absent, your nominees have to run behind so many insurers to claim.

        Now choice is your’s 🙂

        Reply
    • Narayanan-Insurance need it not generic it is specific to an individual. Hence, it is you who has to tell whether the Rs.3 Cr is suffice or not, but not ME.

      Reply
  17. I am of 30 year and currently a central government employee. My spouse age is 24 year. We have a child of 6 months.

    Monthly earning after all deduction:- Rs 49000/-
    Monthly expenditure is Rs 27000/-(including rented house @ Rs 8000/-)
    Retirement age 60 years
    Life expectancy 80 years.
    After retirement to live in self occupied house.

    Current investment:-

    1. Covered under NPS with current value of Rs 5.00 lakhs. My monthly contribution incl. government towards NPS is Rs 9000/-.
    2. Invested in two plot of land with current value Rs 10 lacs.
    3. Axis Long term equity direct growth (SIP= 2000 from Dec-15).
    4. LIC Jeevan shree of Rs 10 lacs coverage[Prem. period- 16 year, Policy period- 25 year. Started in Sep-2011]. Half yearly premium of Rs 25500/-.I am planning to stop this LIC and buy Term Life Insurance plan of Rs 1.00 crore.
    5. Health & Medical benefit under CGHS(Central Govt. Health Scheme) fully reimbursable even after post retirement.
    6. FD with current value of Rs 35427/-. Saving account balance of Rs 1.50 lakhs.

    Please advise:-

    1. How much I should invest each month to build retirement portfolio based on my current expenditure. Also suggest name of mutual fund along with investment break up.
    2. How much and which MF combination I should invest each month to build child education portfolio for Engineering after 17 year.
    3. Which MF to invest as i have to buy a house after 5 year in Delhi with 80% loan from bank( Current value- Rs 50 lacs). Margin money will come from sale of plot of land.

    Reply
    • Mukesh-Sadly, financial planning can’t be done through comment section.

      Reply
  18. Dear Sir,

    Recently I came across MF-utilities where one can invest in direct Mutual funds, So, if one has 4 to 5 Direct Mutual funds in his portfolio, instead of logging in to separate AMC websites, if we open an account in MFutilities we can buy/redeem/switch all direct MF’s via MF utilities. Your view on this sir?

    Reply
  19. Hi Basavaraj,

    I usually see that experts advice to park your surplus saving account money to Debt oriented mutual funds like Liquid Mutual funds. But I analyze that, liquid mutual funds give 0.5%, 2% and 4% return for 1 month, 2 month and 4 month respectively. So, how it is advisable to park the surplus money to liquid or debt mutual funds for short duration , moreover we have to give Short term capital gain tax also on this. On the other hand, Saving bank account gives 3.5 to 4% interest. Is there any difference between Return and Interest rate, in this context?

    Reply
    • Mudit-When you park the money as an emergency fund, then you must not expect the return from it. But concentrate on liquidity. Hence, it is purely your choice of what you decide yourself like keeping in liquid funds, savings account or in eFD.

      Reply
      • Hi Basavaraj,

        Emergency fund is separate. I am just talking about the money which is not in use for 1-2 months, where I should park such money.

        Reply
  20. Hello Basu,

    I decided to use Fundsindia for my SIPs and have been using it since past 10 months as i don’t know much about the dynamics of MFs and wanted to have a common platform to manage and track SIPs . But, now i realized that I’ll loose out some percentage of the returns generated by my SIPs so thinking of switching from regular to direct MFs. I’ve heard this is possible but don’t know how to go about it.

    Could you please explain how to get it done?

    Reply
      • Thanks I’ve read your post “How to switch to direct plans of Mutual Fund?“.

        My question to you is when would be the right time to make the switch? I’ve completed 10 month of SIPs in two equity MFs so would it be right to wait till the 12th month in order to avoid STCG.

        Also, is there any way to avoid exit loads on both?

        Reply
        • Sunny-To avoid taxation, it is always best to switch after a year completion (all units).

          Reply
    • Hi Sunny,
      Its a good thought to shift to Direct Mutual Funds as not many people are aware of it and we may shell out arounf 7K to 10K amount over 10 years to the distributors in long run if not invested in direct plans.
      Look for MFUtility and MFOnline. These 2 are platforms run by AMFI and allows us investing in direct mutual funds of big 25 mutual fund houses without any cost. Involves initial paper work as we have to fill CAN application form but its worth for the cost and losses for the future. Do visit MFUtility.com

      Reply
        • Hello Sir,
          Apologies, Its run by group of AMCs. Correct me if I am wrong. I am newbie recently developed interest and awareness about how financial planning is important and how we ignore it. I follow your articles religiously and they are of great help to people like me. My point to convey was that its convenient to transact from this (MFUonline) platform, its free and we can invest in direct plans rather than visiting different AMCs site. Your comments and suggestions sir..?

          Reply
          • Makarand-It’s alright. But I never heard about MFOnline. MFU is the platform which was launched by AMFI. Your opinion about MFU is correct.

            Reply
  21. Thanx Basuji. But can we increase SIP in balanced fund and consider it as debt instrument. Are balanced fund and PPF sufficient for debt? Is it right in my case to invest 10% of total investment in Mid Cap SIP? I want to curtail the fund number to 4. from above list which should be retained? Pl. answer. Regards.

    Reply
    • Pratap-Equity oriented balanced funds are not 100% debt funds. They usually have exposure of around 65%. Hence, it is not wise to compare such funds with PPF. Yes, try to lower mid and small cap funds as your goal tenure is not long term. According to me, even one equity-oriented balanced fund of HDFC Balanced Fund is enough. However, if you want to own separately, then one large cap fund and one mid cap fund enough.

      Reply
  22. Dear Basuji,
    My age is 50 years. My SIPs are as follows –
    Reliance growth(insured) -1000
    Reliance equity opportunities – 2000
    Axis long term – 4000
    icici pru value discovery – 2000
    Birla Sun life frontline – 2000
    Hdfc balanced – 2000
    Franklin India high growth – 1000
    PPF – 10000 yearly.
    Is it ok for 7 yrs. horizon?
    I want to stop Franklin.

    Reply
    • Pratp-For 7 years time horizon, never go beyond 50% of equity.

      Reply
  23. Hello Sir,

    Goals and my time horizon : I would like to have a corpus of 3 crores in 10 years and I would like to quit my current Job and become a travel blogger.

    I have some queries and I hope you can guide me in the right direction.
    1. I have started SIP with 10000/- per month for past one year and I invested in more than 10 funds for the sake of diversification, which I know now is completely wrong and I have made some changes to my portfolio.
    2. I have decided to increase my M-SIP to 60000/- per month, I know it’s quite an increase from 10000/- and the reason being I don’t have any outstanding loans and I wanted to save as maximum as possible for future. Also, the reason for choosing Manual – SIP is for past 4 months I have not invested in any SIP since market P/E is more than 22. Most of the experts that I spoke to advise investing in Mutual funds when P/E comes below 20. So I am investing my SIP amount in RD for past 4 months and I will continue to do so until P/E comes below 20.
    3. Below are the funds that i am investing:
    SBI Blue Chip (Large Cap) – 15000/-
    DSP Blackrock micro (Small Cap) – 15000/-
    AXIS ELSS (Tax Saver) – 3000/-
    Mirae Asset Emerging (Diversified) – 15000/-
    Reliance Pharma & UTI Logistics (Sector) – 12000
    I would like to know whether the above diversification would work well for time horizon of 10 years and also about the choice of funds that I chose.
    4. With respect to by debt portion, roughly I am investing 1.2 Lakhs in PPF every year and my debt portion comes to 2 Lakhs per year. So my equity to debt portion is 6 Lakhs:2 Lakhs and once after the 6th year I will reduce my MF exposure to 40K per month and 50:50 would be my equity:debt ratio from 6th year.
    I Know its an exhaustive list of questions sir, I was very late to investing and I just started last year and I am in to my 30’s now and I want to invest as maximum as possible. I would like to know your suggestions sir.

    Reply
    • Narayan-Do you feel following a PE strategy works out? PE is lagging indicator but not the present one. It comes with few negatives. Your equity funds are fine and debt you opted PPF. But whether PPF matures after 10 years??

      Reply
      • Yes sir, I started my ppf in 2009 so it matures at 2024 and my equity MF if things go as planned I will exit at 2026.

        Even I am not sure abt P/E sir and that’s the only aspect I followed blindly what the experts said. Your suggestion would be to continue with SIP irrespective of market scenarios Sir?

        Reply
        • Narayanan-Irrespective of market condition go ahead with proper asset allocation you are going (50:50). Do reviews once in a year. That’s enough.

          Reply
          • Thank-you Sir. Appreciate your kind feedback

            Reply
    • Your equity funds are good except for the sectoral funds. I would suggest a g0od multicap fund like icici discovery fund. As Basu has suggested, one should invest irrespective of market conditions because one never knows when the PE will be 20. Only thing, one should be concerned is the goal&Time frame, eg childs education in 18 years/ reteirment in 25 years etc. one or two years before the target,gradually shift to relativly safer debt funds

      Reply
      • Thanks sreekumar. I chose sectoral funds especially Pharma because logically speaking Pharma sector never go out of flavor in the long run and UTI logistics fund has given the best returns in the past 10 years. But yours is a valid point, since sectoral funds can be very volatile and it can pull our overall profits lower.

        Reply
  24. Which elss sip should I invest for 20 year term and amount. Give 2-3 option with valid reason

    Reply
  25. Hi, very informative article.
    I am 28 years old and I am searching for good investment options. I just came to know about peer to peer lending as an emerging platform in India and wanted your views on that.

    Reply
  26. Thanks Basu for the informative article.
    I am looking to invest for a 2 year horizon. Can you please suggest a good (debt?) fund for this horizon ?

    Regards.
    Sanket

    Reply
    • Sanket-If your time horizon is 2 years, then better to stick to Bank FDs or RDs.

      Reply
  27. impressive…
    but not cleared about liquid funds ???
    how in can be invested on Friday & can be withdraw on Monday as market shut down for these days and also nav of the fund also not to be changed

    pl guide ??

    Reply
  28. An Eye Opening article again….
    As usual it is in simple language to understand for readers like me & Best article.

    Reply
  29. Hi Basu,

    I’ve few queries, please guide

    1. Can MF distributor sell multiple amc’s mf ?
    2. Can pvt ltd co. buy shares / mf as a investment

    Thank you.

    Reply
  30. Dear Basu,

    I am a regular reader of your blogs and inspired with your investment ideas. I was not having any tracker or any investment goals. After reading your articles I am getting organised my personal finance. Could you please review my portfolio and suggest me an investment options? I have very generic goal for my daughter marriage and retirement plan.

    Please find my total investment till date.

    Age 33
    Child 1 daughter, Age 1
    Annual Income 16 Lakhs
    FD 70 Lakhs
    House 35 Lakhs
    NPS 1 Lakh
    PPF 5 Lakhs
    EPF 17 Lakhs
    LIC (Profit Plus Tno:188) 1.5 Lakhs
    investment on shares 1 Lakh
    Mutual Fund 20,000 INR
    Medical Insurance with Employer 7 lakhs family flotter
    Loans/EMI zero

    Reply
    • Prasanna-Thanks for your sharing. But in what way these investment aligned to your financial goals? Have you ever thought about that?

      Reply
  31. hi basu,
    My doubt is concerning mutual funds.Equity mutual funds holds company shares. What does the mutual fund does with the dividend income? Is it invested back into fund?

    Reply

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