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Subbu`s Solution

Posted On Monday, Jan 12, 2015

Hi Mona, I see you are more or less looking to diversify your investments, which is great. A proper diversification of your investments will help you make the most of your investments. If your investment period is for 5 years, then you can look at a multi asset fund. Multi asset funds would help you diversify your money across all the three asset classes – equity, debt and gold judicially. In this way you don’t have to invest in different funds but just one to give your portfolio the needed diversification.

In case you do not want to invest through a multi asset fund, then you could diversify on your own, in which case I would suggest that you also look at investing in a Gold ETF or a gold savings fund. Ideally you should have approximately 10% of your investment in Gold.

Dear Mr Sequeira, it is good that you have some investments in equities. As long as you are aware of the risks of holding securities directly, it is fine to invest in them.

Since I do not know your risk appetite, I will not be able give any specific advice. But here is what we generally communicate to investors with similar queries:

• If their investment horizon is long term (since over the past five decades the lifespan of Indians has been increasing steadily or assuming they want to keep something as an inheritance) and they do not need any cash flows from their investments on a regular basis- then they can continue to have reasonably good exposure to equities. This could be a combination of direct equities and mutual funds. Since it takes much time and energy to analyze stocks, my suggestion is to have higher exposure to equities through mutual funds.

You can take a look at `How to select a good mutual fund scheme` for choosing a mutual fund.

• Given the age factor, I would suggest looking at putting a decent percentage of savings in Debt funds too, since the principle is at lesser risk as compared to equity.

• Also add that golden sheen to investments – keep at least 10% of the portfolio in gold.

I am glad that people like you are so cautions about their retirement corpus and aim to make the most of it.

However, Mr. Gopal while I understand you might want to save your corpus from tax liabilities, it also becomes more important that those instruments are best suited for retirement. The instruments where you can save your tax like equity mutual fund schemes where long term capital gains (on redemption after a year) from stocks and equity mutual funds are not taxed might have high risk.

Therefore in my view you could invest a portion of your corpus in Monthly Income Plan (MIP). MIPs invest in debt (majority) and equity. Their objective is to offer regular income through periodic (monthly, quarterly or half-yearly) dividend payouts. However, the frequency and quantum of payouts vary according to the returns generated by the fund and the available corpus.


To tide over the uncertainty over dividend payments in MIPs, investors can opt for systematic withdrawal plans (SWPs).

In SWP, you can choose the frequency and quantum of payments. If the scheme fails to generate returns that match the agreed payout, you will be paid from the principal amount. In SWP, the investor is liable to pay short- and long-term capital gains tax.

Other than MIP if you have just entered your retirement you could also look at tax free bonds for 10 yrs, this will help you get tax exemption.

Liquid funds are also good investment options from the point of view of generating regular cash. However they are taxed.

After analyzing your cash flow needs, you could invest just that much in liquid fund which will generate you that cash and the balance can be invested in an equity mutual fund.

Equity mutual funds can be risky – in the sense that the return pattern could be volatile, but it can generate good long term returns.

Your retirement corpus should generate cash for your needs but also needs to grow. Hence a portion of your corpus should be invested in equities.

Moreover I suggest you to consult a financial advisor before making any investment related decisions.

Mr. Asad, while I cannot comment in which of the two funds you could invest, I would like to take this opportunity to clear the air on the Rs. 50 crore net worth issue that seems to be in the minds of investors like you. I understand when it comes to your hard earned money, you would want to make sure not just you get the most of it but also be rest assured about the fund house you are investing in.

Ever since SEBI – the mutual fund regulator in India has asked all the AMC to have a minimum net worth of Rs. 50 crore, some of our investors have raised their concern on how we plan to meet that requirement.

At Quantum, we believe our role is to be asset managers and not asset gatherers, as an AMC it is more important to take care of our investor’s money prudently, offer investors user friendly investment platforms and maintain transparency in our processes. In the words of our chairman Mr. Ajit Dayal, mentioned in a note to QMF investors – “We (Quantum Advisors – sponsors to Quantum AMC) will keep our capital ready to support Quantum AMC. Quantum Advisors is committed to offering the tens of thousands of investors in the Quantum Mutual Fund a platform that is: (i) unique in its focus on lowering the costs paid by investors, (ii) giving investors a highly successful alternative compared to the opaque system perpetuated by the large fund houses for their benefit, and (iii) ensuring that your savings are deployed in our few, simple products to help you reach your long term financial goals."

Lastly Mr. Asad I would like to conclude by reassuring you that, we are in a business…we are committed to that business...and if that means fulfilling some target…we will fulfill those targets. We will fulfill those targets even though we believe that asking Mutual funds to have Rs 50 cr networth is not a good proposition. Since 1994, we have argued that the minimum net worth for being in the AMC “business” should be Rs 1 crore – since a Mutual Fund is a pass through medium, but various practices result in Capital Adequacy norms getting dominated in the regulatory process! Someday, the net worth may be reduced to Rs. 1 crore while de-linking capital adequacy norms with net worth but linking with practices followed and customers may get more choices..

Moreover while I cannot comment on the fund that you have to invest, I noticed that you had a comment on low expense ratio of QLTEF. I just want to add here that between two funds that largely meets your requirement, the one with low expense ratio is always good. Read my article `Mutual Funds - Dog and the bone story` to understand the impact of high expense ratio.

Subbu`s Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited. The responses expressed here are the personal view of the author. The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. The responses are not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or units of the Mutual Fund. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Please visit - to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme`s objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.
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