Reader's corner: Should you invest in MFs directly or through an advisor?

Topics Mutual Funds

I am 65 years old and I hold 20 mutual fund schemes. I want to consolidate them. At my age, how many funds should I own? And should I look at equity schemes? I have a regular income via a pension. I can continue to invest Rs 25,000 a month for the rest of my life. I am not interested in using this money. I want to pass it on to my grandchild, who is currently 20 years old.

There is no specific limit on the number of schemes that an investor should have. But it is more important to have a diversified set of mutual fund schemes that invest across market caps and asset classes. It would be prudent to have a smaller equity allocation in your portfolio. So, you should look at reducing or consolidating your portfolio to the extent that you are left with higher investments in relatively safer investment avenues, such as debt mutual funds. 

Since your grandchild is over 18 years, he or she is a major. While there is a provision to invest in the name of a minor, there is no such provision in the case of a major. Hence, you should appoint your grandchild as the nominee for your investments. In this case, there is the advantage of time, so the risk-appetite can be higher, which is why you can consider taking higher allocation to equities.

I am 34. I want to save Rs 50 lakh in the next ten years. I also want to save income tax. Can I use the equity-linked savings scheme for both the goals? If yes, what should be the proportion I need to allocate to ELSS and another large-cap fund?

Equity-linked savings schemes (ELSS) are used for both wealth-creation and tax-saving purposes. Since the investment made in the scheme is exempt from tax under Section 80C, you can only get tax exemption for an investment amount of up to Rs 1.5 lakh, assuming you have not invested in any other tax-saving instrument. So, you can invest in this scheme to achieve the twin goals of tax-saving and wealth-creation. 

The allocation between the two funds can be looked at as a function of your goal and the risk profile of the two funds. You should consult a financial advisor to understand the optimal allocation that should be made to help you reach your goal. 

I am 22 and recently got a bonus of Rs 10,000. I am a first-time investor in mutual funds. I want to save money but don’t have any financial goals. I want to keep the money in case I need it for an emergency. I don’t want to invest in products that have a lock-in. Can you suggest fund categories that I can look at? I am young and willing to take the risk in equities?

Since you are looking at safety and are also willing to take on some risk, you can look at splitting your investments. You can invest one part of your bonus in a large-cap oriented scheme, as you are a first-time investor and also have time on your side.

The rest of the money can be invested in liquid, overnight, or money market funds, where the money can be easily redeemed in case of an emergency. However, please note that withdrawals from a liquid fund within the first seven days of investment will be subject to exit load.

Should I invest via a direct plan or go through an advisor? 

If you are comfortable with the financial markets and their functioning, and understand how mutual fund products work, you can opt for the direct route to invest in mutual funds. But if you are not, then it is best to go through an advisor. Both routes allow you to transact via the direct plans of mutual funds. 
The writer is MD & CEO, SBI Mutual Fund. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in



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