Readers' Corner: Mutual Funds

I want to save for my 10-year old daughter’s higher education. Which mutual funds should I invest in?

Within mutual fund categories, there are specialised child care plans which can be used . As the investment horizon is long, it would be ideal to go for a plan which has higher allocation to equities. 

How frequently should I review my mutual fund investments? How often should I change the schemes I am investing in?

While selecting a fund, one should not look at the recent past returns but for long-term performance, quality of fund house and suitability of a chosen fund in order to achieve one’s financial goals. When it comes to fund selection, we recommend the investor consult their financial advisor. Once invested in selected funds, the review should be done on an annual or a half-yearly basis, as guided by the advisor. However, there is no fixed timeline when it comes to churning one’s portfolio. Remember, short-term volatility in performance should be ignored, and more weight should be given to long-term objectives when it comes to achieving financial goals.

If the US Fed increases interest rates, will it help the US equity markets, too? Is this is a good time to start investing in a fund with exposure to US equities and for how long?

As a general rule, an investor could consider 5-10 per cent of portfolio allocation to international funds at all times. This is because 1) several global businesses, which are leading the next wave of growth in technology and otherwise, are not listed in India. So, being invested in an international fund is one way to participate in that growth story; 2) this can ensure geographical diversification, insulating an investor from region-specific risks; 3) since all your assets, both financial and physical are in rupees, US dollar funds can act as a hedge; and 4) in case there is a dollar expense in future, being invested in such funds can come handy.

My father is a senior citizen and has all his investments in bank fixed deposits (FDs). He is thinking of investing in gilt funds. What are the risks? Since banks are cutting FD rates, is this a better alternative?

Within the fixed income space, gilt funds have higher volatility/risk. Though they stand to gain from the falling interest rate scenario, the returns could be volatile. Given the investor profile, we would advise the investor to consider opting for accrual funds. In terms of selecting the right accrual product, we would advise the investor to consult a financial advisor, as several other aspects have to be taken into consideration while investing.

On average, what is the difference between the returns of a direct fund and a regular fund? I have seen that in case of some funds, the difference is quite a bit.

The difference in expense ratio between a direct and regular plan might vary across product categories and asset management companies. What is more important is that individuals need  not factor this as a main reason for selecting or not selecting a fund that will help achieve their financial goal. While it is true that a direct plan might have a lower expense ratio, we believe such a plan is only suitable when an investor is well versed with the product and its functioning style. Individuals who are not very savvy with products should consult a financial advisor before opting for any plan.
The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in

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