Readers' Corner: Mutual Funds

Nimesh Shah
If the markets are rising, is it better to invest a lumpsum amount in one of my existing mutual funds or increase the SIP amount by across all mutual funds? I am investing in four mutual funds currently through SIPs. 

As per the assumption in the query, if the markets were to continue to rise, then a lumpsum investment may prove to be better than SIP. However, over a market cycle, SIP can be the best method to invest as it aids in rupee cost averaging. 

Since the details of the four funds you have already invested in are not provided, it is prudent to continue with SIPs for long-term wealth creation. Also, with disposable income increasing over a longer time frame, topping up one’s investment amount through SIP Top-Up option is advisable. 

As an AMC, we are recommending investors to invest lumpsum in dynamic asset allocation funds because such type of funds aids an investor to buy low and sell high (equity). 

What is the difference between equity diversified and multi-cap funds? 

Although, equity diversified and multi-cap funds are almost similar in its construct, there is a difference between the two. An equity diversified fund will invest across all sectors and, therefore, the risk associated with such a fund in most cases is likely to be lower than a multi-cap fund. 

While in the case of a multi-cap fund, the investment will be agile and market cap-agnostic. It may invest across market capitalisation based on certain parameters. Based on market condition, such funds may have a theme/sector concentration.

Is it possible to do weekly SIPs instead of monthly SIPs? Is there any benefit of weekly SIPs? 

Yes, weekly SIP is possible. Ideally, weekly investments could be considered if the investment ticket size is huge. However, both weekly and monthly SIPs are good frequencies for meeting long-term financial goals.

I redeemed some money from my equity mutual funds. Since I invest through SIPs, will tax be deducted for every instalment?

The answer to this question depends on the holding period of your investment. If the investment is redeemed within twelve months from each instalment, then returns earned on your redemption amount will be taxable at 15 per cent (Short-term capital gains tax). On the other hand, if redeemed after a year, the returns qualify for long-term capital gains tax, which in case of equity mutual funds is nil. Also, investments in equity schemes are also subject to exit load.

When it comes to calculation of capital gains, the principle followed is that of First-In-First-Out. This means the oldest unit is first sold followed by the others according to the sequence of purchase. 

What are the things to look for while investing in a new fund? As there is no track record of returns to check for, what other parameters should I check?

While investing in New Fund Offerings, it is of utmost importance to look at the pedigree of the fund house, investment philosophy followed, fund management experience and track record of other schemes managed. Other parameters to be considered include understanding the desired scheme’s investment theme and mandate, so that the scheme aligns with your investment objective and risk profile.  

 

The writer is managing director & chief executive officer, ICICI Prudential Asset Management Company . The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in


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