RAJESHWARI ADAPPA | Tue, 28 Jun 2016-06:55am | dna
Experts advise that you should park the lump sum in avenues such as liquid or ultra-short term funds till you decide where to invest it as putting the money in a savings account not only earns low interest but also tempts you to blow it
Windfalls or coming into large sums of money sure makes you feel rich but if you want to stay rich, then the challenge is to ensure that the money lasts for a really long time.
Incidentally, experts advise that when one does not know what to do with a large sum, the first thing to do is take it off the bank savings account.
“The money lying there not only earns low interest but tempts you to blow it. Hence, park it in short-term avenues such as liquid funds or ultra-short term funds until you decide or get advice on where to invest the money in,” says Vidya Bala, head of mutual fund research, FundsIndia.
If you have a lump sum to invest, it is best to revisit your investment plan, advises certified financial planner Gaurav Mashruwala.
“Firstly, buy adequate health and life insurance. Secondly, if you have any loans, pay up the loans. After that, you can start goal-based investing,” says Mashruwala.
Most people are confused where to invest for the best returns. “Where to invest would depend on whether they have a near-term use for the money,” says Bala.
“If it is retirement money and the investor needs to create an income stream, they could deploy it in a combination of ultra-short and short-term debt funds and do a systematic withdrawal plan to generate their own income. If it is for the long term, a combination of equity and debt funds will work well. So one needs to know the purpose and the time frame before they can decide where to invest,” says Bala.
The most important task is to create a goal for such money and then allocate and invest accordingly. While goals would depend on the individual’s requirements, broadly your goals could include creating funds for a specific purpose such as a retirement fund, an emergency fund, a kids education or a marriage fund or even a fund for personal goals (say a foreign trip), etc.
A retirement fund is a must. HDFC Pension’s CEO Sumit Shukla advises that 20-30% of the sum should be invested for retirement. He suggests investing the lump sum initially in Tier II account of NPS from which some money could be transferred into the Tier I account every month via systematic withdrawal plan. “This would help to ensure that initially the money is invested in debt (Tier II account) and as one invests in the Tier I account, slowly the equity portfolio is also built up,” says Shukla.
“Corporate debt has earned 10.47% while government debt has earned 10.35%. Compared to the 8.8% returns from PF, this difference would work out to be huge over a period of time,” points out Shukla.
Depending on your risk and return profiles, there is a range of avenues. “Investors seeking low to medium risk can examine fixed deposits, debt mutual funds, corporate bonds, tax-free bonds and monthly income plans.
However, investors with higher risk preference can look at balanced & equity funds, direct equities, private equity & real estate funds,” according to a DBS spokesperson.
“Lump Sum investing is fine when it comes to low-risk debt funds. However, when it comes to equity funds, it is important to understand the risk of timing the market by investing in one go. Ability to take near-term falls is a must of one chooses to invest lump sum,” says Bala. A better option is to invest in a phased manner through an SIP (systematic investment plan).
It may be a good idea to take professional advice. “Also, consider the impact of tax on the returns,” says the DBS spokesperson.
The mistake that many people who come into big money suddenly make is that they start living a lavish lifestyle. “Instead, invest in income generating and growth-oriented assets. Use the returns from these assets to enhance your lifestyle,” advises Mashruwala.
The solution is to invest wisely keeping in mind two primary goals: ensuring safety of capital and also growth.
Source : http://goo.gl/4KucZz
If you can re-balance your portfolio once a year, separate equity and debt funds are better
Priya Nair | Mumbai | November 12, 2014 Last Updated at 21:59 IST | Business Standard
It’s raining returns on mutual fund investors with both equity and debt funds seeing good growth. In a bid to take advantage of this, fund houses are launching funds that invest across asset classes: equity, debt and gold. But should investors go for such funds or is it better to invest separately in equity and debt funds? Franklin Templeton India’s Multi-Asset Solution Fund’s new offer closes on November 21. The fund will invest in existing schemes of Franklin Templeton and ETFs.
“We believe investors need to stay invested across asset classes at all points in time, irrespective of whether one asset class is doing well or not. To this extent, there is no sanctity behind timing a multi-asset fund now. Those investors who can do an occasional re-balancing, say annually, might as well hold separate equity and income funds, says Vidya Bala, head of mutual fund research, FundsIndia.com.
A pure equity or a pure fixed income fund may give better returns if seen from one point to another. But in a portfolio, investors need dynamic allocation and they should be able to move between asset classes smoothly. A multi-asset fund will allow this automatically, says Harshendu Bindal, president, Franklin Templeton Investments (India).
For retail investors, re-balancing portfolios, that is, shifting from equity to debt funds will involve transaction costs and can also be time consuming. But investing in a multi-asset fund can give diversification across asset classes and automatic asset re-balancing with exposure to a single fund. “But the disadvantage is that they are mostly fund of funds and, hence, receive only debt status for tax purposes and not too tax efficient,” says Bala. This means that if you stay invested for three years, you will be taxed 20 per cent with indexation. Unlike this, in a pure equity fund, there is no tax after one year. The expense ratio, too, could be higher due to the fund of fund structure, since expenses will be over and above the expenses charged by the underlying schemes.
Another disadvantage is that being a fund of fund, only funds from the same fund house will be available. Hence, the best fund in each category or asset class may be lost, Bala adds.
Explaining the rationale behind investing in gold in the current market Bindal says gold is a traditional hedge against inflation, which is useful given India’s high inflation rates.
R Sivakumar, head-fixed income, Axis Mutual Fund says that multi-asset funds are meant for long-term investors, who are not investing in a particular asset because of the cyclical returns from that asset. “In any asset allocation pattern, you will always have a certain amount in all assets. The advantage of doing this through a fund is that fund will always sell the asset that is over-performing and buy the asset that is under-performing,” he says.
According to data provided by Value Research, Axis Triple Advantage Fund, which invests in equity, debt and gold is the largest fund in this category with assets under management of over Rs 500 crore. It has given returns of 14.64 per cent over one-year period. The fund invests in direct equities and fixed income and in gold exchange-traded funds.
Some other multi-asset funds are Canara Robeco InDiGo, which has given returns of 1.06 per cent over one-year, Birla Sun Life Financial Planning (Aggressive Plan) – 39.46 per cent and Union KBC Asset Allocation Fund Moderate Plan – 15.62 per cent.
Ideally, such funds should have a minimum investment horizon of at least three years. Investors can have a multi-asset fund for the base asset allocation and use separate equity and diversified funds for incremental investment, Sivakumar adds.
Source : http://goo.gl/mcN848