Monday, October 19, 2009



S Chatterjee asking for MF Help wrote :
Hello Sir,

I need some suggestion and advice regarding MF'S. Before I
introduce myself, just a note of thanks for you!!

I have been reading your blogs on mutual funds and other personal finance related queries off late. Let me tell you, you are doing a
very good job and there are hundreds of people who are benefitted.
Keep it up!!

I am 24 years old and I have joined my first job in Dec, 08 in an IT major. My annual Package is 2, 90,000/-. In this financial year I would
be taxable and hence want to invest in ELSS.

My previous investment details are as follows-

Sundaram BNP Paribas Tax Saver (Mar,09)-10000/-

SBI Magnum Tax Gain (Mar,09)-10000/-

Fidelity Tax Advantage (Mar,09)-5000/-

N.S.C (Mar,09)-25000/-

I had made all these investments (lump sum) for my mother's
Tax Savings purposes for 2008-2009 and have chosen the Dividend Payout option
for the 3 MF’s.

We also have a LIC money back (20 years) policy called Jeevan Surabhi done in Mar, 08 (which I
think was a bad investment but we were at a loss at that point of time after my
father’s demise in Feb, 08) in which we have to pay an annual premium of
6,350/- and we had invested 60,000/- in Principal
Personal Tax Saver Fund in Mar, 08 but as the stock markets have crashed,
its down. But I am not too bothered about it as it is locked for 3 years and I am
optimistic of the markets reviving.

I would also like to add that we have nearly 15, 00,000/- in
Bank FD's at 11.5% p.a and my mother draws a pension of 7000/- p.m.

My plan of investments is as follows-

I plan to invest via the SIP route (I read about
it everywhere and I think it’s a good way of making small investments every
month for tax saving purposes).

I want to invest for more than 3-5 years and in
any case ELSS has a lock-in of 3 years.

I am not
interested in LIC schemes at this point to time. I plan to have a pure term
insurance started after I get married (3 years later) for a period of
25 years or more (if possible).

I also plan to have a PPF.

I plan to have a 65:35 ratio towards Market Linked
Schemes and Fixed Returns Schemes.. And hence plan to invest 5500/- every month
via SIP.

Actually,my job is good,but i am also thinking of higher studies,MBA if i can get into some top grade B-schools.

This is also one reason why I wasn't too keen on Insurance right now.
Can u through some light on Ulips(I have no idea). I guess a Term insurance would be the right way forward.
What should ideally be my S.A ?

Regarding ELSS now,isnt HDFC Tax Saver inclined towards Mid-Cap Market?? Will it be a good idea to invest there considering elections and current volatility?
Tell me one thing,since i have already invested some money in most of those,should a good investor look at investing is BIRLA or DWS or HDFC (as i have no investments there) ? Or should he look at the performance and where the fund manager is investing the money.The second option seems correct to me.
Can you just give me a little
idea of the break-up i should have of the amount of SIP investment,if i were to invest 8000/- p.m.

After so many Questions that you would probably love to answer,one question that you would hate. Here it goes-
Can i expect 15-20% returns over 3-5 years Period from now on ?? (I know MF's are market dependent,i know there can be another Satyam,i know the recession can continue,but since you are an Expert and have a vast experience since 1991,i just need your views.)
Kindly suggest me some good Tax Saving Mutual Funds and also
let me know what you think of my plan and please give any suggestions/advice without hesitation. Please feel free to ask me any further questions which would be helpful in providing guidance and advice.

Looking forward for your opinion and help from which i can learn a lot !!

Thanks and Regards,
S. Chatterjee


Dear Suman,
First of all, thank you very much for your kind words on my blog.
It is always a pleasure to advise such interested and intelligent investors like you who have done their homework. I commend on your Previous Investments and your future plan of investments.
Yes, you are right, SIP is the best way of investing in the market as it automatically 'times' the Market.
I do not find any logic in not going for Insurance just because you want to do Higher Studies. Insurance does not stop you for studying!!! It is always better to have oneself adequately Insured and I am not so sure of you waiting to get married and then getting insured. The earlier you insure yourself the Cheaper it works out for you.
ULIPs are not a good avenue for investment, especially for educated investors like you. ULIPs are very costly as the Premium Allocation is high and there are lot of Hidden Charges. ULIPs work best only if your Investment Horizon is above 15 years. Mutual Funds are the best. Instead fo ULIPs go for a Pure Term Insurance and invest the Differencial Premium Saved in Mutual Funds, you will get MORE returns than what the ULIPs give you.
For your age and your family dependents, the Ideal Sum Assured should be between 15 - 20 Lakhs. A 30 Lakh SA should be More than Sufficient.

Yes, PPF is a good investment. It helps you build a Decent corpus while giving you Tax Benefits. And its Forced Lock-in will ensure that you will 'allow' the money to compound and give better returns.
However, your plan of having a 65:35 ratio towards Market Linked and Fixed Returns needs to reworked. Either way, you are having a Decent job and do not need any Monthly Income and moreover, your young age should allow the freedom to increase the ratio in favour of Equities to be in the region of at least 80%.
You can, however, consider including Balanced Funds in the 80% Equity Ratio.

Yes, HDFC Tax Saver is a Mid-Cap Oriented fund. but for your age, I am sure your Investment Horizon is more than 5 years at least, and with that in mind, I had recommended the HDFC Tax Saver Fund. And if you have noted the performance of this Fund, it has been a steady and consistent performer and should continue to remain so.

There is no need to invest in a Fund, just because you do not own them. Do not be a 'Collector' of Funds. Performance is what ultimately matters.
For your ELSS investments, you can consider investing in the following Funds, which should give you, good returns.
You can split your 8000pm investment into the following funds :
Birla Sunlife Tax Relief 96 fund - 1000pm(invest through Birla Century Sip)
DWS Tax Saving Fund - 1000pm (500*2sips)
Fidelity Tax Advantage Fund - 1000pm(500*2)
HDFC Tax Saver - 1000pm (500*2)
Prinicipal Personal Tax Saver - 1000(500*2)
Sundaram Tax Saver - 1000(500*2)

Non-ELSS :
HDFC Top 200 Fund - 1000pm
Mirae Asset India Opportunities Fund - 1000pm

Here I have given 6000pm into ELSS considering your Tax Outgo, though 8000pm would not be sufficient to cover the 1 lakh treshold under 80C. You can consider increasing the investment amount in any of the funds, or Better Still, invest the 24000p.a. into Term Insurance of say 8000per Annum and the balance 16000 or so into the PPF.

Note :
I have suggested DWS Tax Saving Fund not only because it offers Free Life Insurance Cover but because its Good Performance during the recent Market Meltdown and during the subsequent bounce.

Go for Dividend Payout or Growth option, but NEVER for Dividend Reinvestment option, as your Dividend Reinvestment will be further locked in for 3 more years.
Also consider investing in DWS Tax Saving Fund which offers Free Life Insurance cover of upto 5 times your investment. The Fund's performance has not been great but it has not been bad either. The Fund House has had a good Track Record which is a comforting factor.
After the Mandatory Lock in, review your investments and consider switching to a Balanced Fund for your "Conservative" Mind's Comfort.
Regarding the Return Expectation of 15-20%, it is entirely within possible limits and not unreasonable, especially after the Massive correction in the Markets by more than 50% in 2008.

The Indian Association of Investment Professionals (IAIP) recently conducted a survey of 530 financial professionals in India, majority of whom were employed in brokerages and mutual funds. They were asked their views on a number of diverse and interesting financial issues. What was interesting was that half of them (but certainly not all), felt that equities would be the best asset class to give the highest returns by 2010. And around 40 per cent felt that the Sensex would trade between 10,000 and 12,500 by the end of March 2010.(This survey was done when the Markets were trading at 8000 levels). What is believed to really give a boost to Indian equities was a mix of global (resolution of the financial crisis) and local (elections) triggers. And expecting 15% is not unreasonable.

Best of luck,
Srikanth Matrubai,

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