In July 24 edition, Hemant Rustagi, chief executive officer, Wiseinvest Advisors, answer your queries on investments.

Varun Noothi calls us from Hyderabad. He has investments in SBI Focused Equity Fund, SBI Blue Chip Fund, HDFC Small Cap Fund and ICICI Pru Balanced Advantage Fund.

When you start investing, many a times you are worried about the fact that whether I should be investing my money into equity or not. But I think that is not the point, the point is what is your time horizon. If you are investing for the long term there is no harm, specially, when you are investing through Systematic Investment Plan (SIP). For example, you are committing to invest a sum every month. So what it does for you, it allows you to benefit from averaging. As far as the equity funds are concerned, I would say the fund selection is good only issue. You have ICICI Balance Advantage Fund, this is a good fund in this category. It is a fund which had restricted exposure to equity. It is good, if your time horizon is three to five years.

But if you are investing for 15-20 years, you need to actually increase your allocation to equity. So, in that case my recommendation to him would be that he should actually stop investing in that fund. If time horizon is three to five years, he can continue. If he is investing for the long term, then my recommendation would be that he should exit from that and he should be looking at some good quality multi cap fund. He can look at Kotak Standard multi cap fund or Axis Focused 25 funds. One of these funds you can add in your portfolio. The remaining three funds, which you have in the portfolio are pretty good, so you can continue investing in those.

Puneet Sood calls us from Punjab. He wants to know whether to go for SIP or Unit Linked Insurance Plans (ULIP) for long term horizon?

The question that he has there are two important aspects here. One he is talking about investing through SIP, so let me just clarify for him that SIP is just a mechanism that allows him to invest on a monthly basis in any pre-decided fund. It could be balance fund, equity fund or it could be a debt fund. SIP by itself is not a product, where as if you look at ULIP, it's a product. It is investment-cum-insurance product. Since you are talking about a time horizon of 10 years, you can take risk and should be actually investing in equity fund. If I was to compare equity funds with ULIP, equity fund definitely score over ULIP in many aspects. One – the performance can be better, the cost is much lower and there is more flexibility, because if he want to make changes, he can make changes in that. So, it's very clear that if you are looking at 10 years, he should be looking at equity fund.

Another important aspect he need to look at is are you looking at saving taxes. If that is the thing, then he should be looking at equity linked savings scheme (ELSS). ELSS as a category in mutual fund where you can save tax under section 80C. So, if your intent is to save tax and invest in equity, then you should look at ELSS. I can recommend one or two funds for you. You can look at Axis Long Term Equity Fund or IDFC Tax Advantage Fund. But if 80C is not a consideration for you, then you should be looking at good quality multi cap funds. So, you can look at Motilal Oswal Multicap 35 Fund, Invesco Contra Fund or L&T Emerging Fund. These are three funds investing in different segments of the market depending on the amount that you want to invest, you can choose two or three of these funds and start your investment process.

Equity funds are much better than ULIP. I have told you some two to three parameters on which I believe that these are much better, because ULIP will be more costly and what happens is, it is an investment-cum-insurance product. So you don’t even get the kind of insurance cover you should be getting, you should be looking at a term plan for pure risk cover and then look at equity funds. So, look at a combination of term plan and equity fund, which will take care of both your risk management as well as your investment portfolio.

Sahil Shaha writes to us on Facebook. He wants to invest Rs 50,000 in SIP for 15-20 years. He wants to know which funds to invest in with moderate risk?

There is slight contradiction in what he says. His time horizon is 15-20 years that means he should be in a position to take risk. It doesn’t matter what his age is, the time horizon itself allows you to take some risk. When we talk about moderate risk, we need to understand there are two risk that we have to take when we invest our money. One is, we don’t want to lose a part of our capital, the second is inflation, which I believe is a much serious risk especially when you are investing for the long term, because you need to earn positive real rate of return, which is gross return minus tax minus inflation. So, if you invest in equity funds, well diversified equity fund, good quality funds for 15-20 years, I think there is no reason that you need to worry about what will happen to my money, because averaging is what you will benefit from because you are investing through SIP. So, if you continue this investment process for 20 years and I am assuming that annualised return of around 12 percent and I think you should be able to build a corpus of Rs 5 crore. This is what is a power of compounding that does especially when we invest for long term.

Couple of funds I am recommend to you. Some funds like Kotak Standard multi cap fund is one you can look at. Second HDFC smallcap, because when you are investing for the long term you must have the right combination of exposure to different segments of the market and third one can be Axis Focused Fund. So look at these three funds and invest your Rs 50,000 every month, continual investment process for 20 years irrespective of the market condition, because they are going to be many periods during this 20 years where you will feel that you see the market volatility the way you are seeing right now. You need to ignore that continue investment process like I mentioned to you. You should be able to do build a corpus of Rs 5 crore and more.

Rajesh Shahi writes to us on Facebook. He has investments in Axis Multicap Fund Direct Growth & Kotak Select Focus Fund Direct Growth and wants advice on should he continue with SIP or look at one large cap fund?

Both the funds where he is investing right now are multi cap funds. But both the funds are biased towards the largecap. I believe that almost 80-85 percent of his money is already going into the largecap. If at all, he is looking at adding one more fund, my advice would be to add one quality midcap fund or a fund which invest in a combination of mid and small. Like I said earlier, it is very important to stay committed to a time horizon. When investing in equity, it is equally important to ensure that you have the right balance in terms of exposure to different segments of the market. I would say, I did mention about a fund L&T Emerging Businesses Fund that he can look at. So add one more fund, add in mid and small cap category rather than adding a largecap fund.

Chanda Manral Bisht writes to us on Facebook. She has invested in L&T Emerging Business Fund, Aditya Birla Sun Life, HDFC Mid Cap Opportunities, Kotak Select Focus Fund and ICICI Blue Chip Fund. She wants to assess her portfolio and wants to know where to invest additional Rs 25000?

She already has four or five funds and has a time horizon of five to seven years before she retries, so I think the time horizon is right. Continue investment in that. If I look at the mix of funds in your portfolio, you have Birla to 100 Fund, the name has changed now, instead of that maybe you can look at Invesco Contra Fund, because that will bring in different style of fund management in your portfolio. The investment that he want to do additionally is you can do an existing fund, you don’t have to add too many funds because over diversification of portfolio is no going to help you. Another important thing I would like to mention clearly here is that, when you approach your retirement age, maybe a year or two before, systematically try re-balancing your portfolio because then you have to prepare your portfolio for income generation.

Right now, it is focused more on creating growth, so there once you are approaching your retirement age what you need to do is make sure your portfolio is towards income generation. You still need some growth, so look at hybrid funds and then opt for systematic withdrawal plan, wherein every month you can draw some money despite being market linked product you will still get some money on a regular basis as much as you want every month. So, continue with these funds, make one change additional money invest in existing funds, rebalance your portfolio just a year or two before your retirement.

Visu Iyer writes to us on Facebook. He wants to know which MFs are best to give regular monthly or quarterly dividend?

He is looking at basically generating some regular income. Generating regular income is becoming very challenging now a days. As far as the mutual funds are concerned there are two ways you can do it. One is either you can opt for dividend payout option so there are funds which give you monthly, quarterly and half yearly and yearly dividend depending on your requirements. If you are looking at monthly there is a monthly option. The second option is opt for systematic withdrawal plan. Let me just explain briefly here. If you are investing in any equity oriented fund for example like equity saving or balance advantage or balanced fund or equity fund there is a dividend distribution tax of 10 percent plus there is a surcharge so it comes to roughly around 11.6. Every time the fund pays you dividend the fund has to pay dividend distribution tax to the government and the remaining comes to you. Obviously, what comes into your hand lower by 11.6 percent.

If you look at systematic withdrawal plan, you allow the money to grow over the period of one year and then enrol for systematic withdrawal plan, where you give instruction to the fund house saying, I would like to have Rs 10,000 per month. Despite being in the market linked product, you are very sure of getting Rs 10,000, which may not be happening in the dividend option case and the second is your tax incidence will be much lower. Look at the right option, but I think importantly you need to look at the right fund. So, if you are looking at an option, which can your regular income as well as growth. As I mentioned earlier, depending on what your time horizon is, you can look at balanced advantage or a balanced fund. If you can allow money to grow for a year, allow it to grow in growth option. Then set up a systematic withdrawal plan, so that your tax incidence will be much lower as compared to dividend option.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Jul 24, 2018 5:53 PM IST