Subbu`s Solutions

Posted On Wednesday, May 20, 2015

  • Q1) I am a 28-year-old salaried employee. I am investing Rs 2,000 via monthly SIP in an equity fund. I am thinking of increasing investing more, but I am uncertain if I should invest more in equity or go for some other asset class. Please advise.

    At your age generally we see young investors have a relatively higher risk taking capacity. As you are far from your retirement age you can keep large portion of your investable amount in equity. Remember equities tend to give high returns with high risk in the long run. SIPs can help you balance out the risk factor and also make you a disciplined investor. You could always start additional SIPs and expand your monthly investments.

    It is important not to keep all your eggs in one basket. A sound asset allocation strategy ensures your portfolio is well-diversified and aggressive enough to meet your financial goals. Allocate a small percentage of your savings in debt and gold too.

  • Q2) My husband will be retiring in June 2015. He will receive Rs 50 lakh in terminal benefits-gratuity and provident fund. He will also get a monthly pension of Rs 20,000. How should he invest the lump sum amount so that his tax liability is minimum and the corpus grows.

    Great to see that you want to save your corpus and not spend it on expensive vacations or something similar! Here’s how you can invest this corpus:

    Step 1 – Calculate your monthly expenses post retirement. See if the pension (Rs. 20,000) is enough or not. If it’s enough then your asset allocation will differ. If not, invest money accordingly so that he can fulfill his needs of monthly expenses. We presume that this 20,000 is after paying taxes.

    Step 2 – Keep a portion of your money aside for contingencies in instruments like bank FDs. This could be one or two years of expenses.

    Step 3 – Other than that at this stage of your life, assuming your age is around 58 years, you may invest 10-20% in equities, 10-15% in gold and rest in debt. Generally it is presumed that at this age the risk taking capacity of an investor is low. Therefore you should park your money in less risky asset class like debt and bank FDs also.

    However, if you wish to grow your money and your risk appetite is high you can look at equities Remember asset allocation always plays an important role in the kind of returns your investments generate. Please consult your financial advisor before taking any investment related decisions.

  • Q3) I am a 25-year-old salaried person. I have invested Rs 5,000 for 12 months in recurring deposits. Where should I invest the sum received upon maturity? Also, I have a surplus of Rs 20,000 every month which I want to invest in RD again, is it advisable?

    Generally at your age (young & earning) your portfolio should be more exposed to equities. With comparatively less responsibilities and more risk bearing capacity, you could make the most with equities. However, you need to be cautious as equities have the potential to give higher returns but the returns tend to be volatile. To mitigate the risk of volatility you could look at SIP in any prudent diversified equity mutual fund. The surplus of Rs. 20,000 can also be divided in multiple SIPs in equity funds, this way you will also balance out the risk factor and make yourself a disciplined investor.

    RD, while good from the point of view of maintaining a discipline, may not meet your requirement to grow the investment. Interest on RD would be taxable. Sometimes the post-tax returns may not be enough to beat the inflation. Remember the long term capital gains on equity funds are tax exempt.

    While I am not suggesting that you close your RD as it is relatively safe way to invest, provided the RD is with a good bank, I would urge you look at equity mutual funds.

    At the end of one year, Rs 60,000 can again be invested in a FD, liquid fund or partly in them and partly in equity funds. Since you are a salaried person you can look at tax saving equity schemes too. Please consult your financial advisers before taking any major investment related decision.


Disclaimer:

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 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 - www.QuantumMF.com 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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