Expert Panel Answers Your Personal Finance Queries

Key Takeaways:

1. Portfolio Diversification:

Restrict the equity portion of the portfolio to one tax-saver fund, one mid-cap fund, one large-cap index fund, and one small-cap fund in the initial phase. Avoid over-diversification and manage the portfolio efficiently.

2. Asset Allocation:

Create a balanced mutual fund portfolio with a mix of active and passive schemes. Utilize EPF/PPF for creating the fixed income part of the portfolio and consider a debt fund for near-term goals.

3. Long-Term Investment Strategy:

Hold the schemes during downturns and exit only if there is consistent underperformance for 6-8 quarters, compared to peers and benchmarks. Avoid chasing the best performing schemes and focus on long-term consistency.

4. Tax-Saving through NPS:

Under the new tax regime, individuals can avail of deductions for employer’s contribution to the NPS, subject to certain limits. This can help in tax planning and optimizing savings.

5. Retirement Planning:

With disciplined investment and SIPs in a diversified mutual fund portfolio, individuals can work towards achieving their retirement goals. Adequate life and health insurance are essential for financial security.

Based on the advice from the experts, here are the recommendations for your mutual fund investments and tax-saving strategies:

Mutual Fund Investment Recommendations for the 26-year-old investor:

Portfolio Restructuring:

The expert recommends consolidating the mutual fund portfolio to avoid duplication and simplify portfolio management.

Equity Allocation:

Restrict the equity portion of the portfolio to one tax-saver fund, one mid-cap fund, one large-cap index fund, and one small-cap fund in the initial phase.

Allocation Adjustment:

Consider directing Rs 3,000 to one tax-saver scheme and using EPF/PPF for creating the fixed income part of the portfolio.

Contingency Fund:

Create a contingency fund equivalent to 12 times your monthly expenses and commitments, which can be parked in a liquid fund or sweep-in fixed deposit for emergencies.

Active and Passive Schemes:

Build a mutual fund portfolio with a mix of active and passive schemes and avoid chasing the best performing schemes.

For the 36-year-old investor:

Retirement Planning:

With disciplined investment for the next 14 years and assuming inflation to be 5%, the investor should be able to retire at 50 with the current lifestyle. The surplus of Rs 2.3 lakh per month should be invested through SIPs in a mutual fund portfolio with specific fund recommendations.

For the 34-year-old PSU engineer:

Underperforming Funds:

Consider reinvesting in consistently performing funds if the previous funds have underperformed by a large margin from their benchmarks and have been consistently underperforming on a daily rolling basis over 7-10 years.

Tax-Saving Strategy For the 26-year-old investor:

NPS Contribution:

As per the provisions of Section 115BAC of the Income-tax Act, 1961 (new regime), the investor can avail of the deduction for employer’s contribution in the NPS. The deduction should not exceed the threshold limit of 10% of the contribution made by the employer from the taxpayer’s salary.

These recommendations are based on the advice provided by the experts in the given document. It’s important to note that these are general recommendations and may not be suitable for everyone. It’s advisable to consult with a financial advisor to tailor the investment strategy to individual financial goals and risk tolerance.

FAQ

Q1: Which mutual fund schemes should I invest in for maximum wealth creation?

A1: The experts recommend a balanced mutual fund portfolio with a mix of active and passive schemes, avoiding over-diversification and focusing on long-term consistency.

Q2: Can investment in the NPS help cut taxes? If yes, then how much should be the amount and how can I go for it?

A2: Under the new tax regime, individuals can avail of deductions for employer’s contribution to the NPS, subject to certain limits. The amount and process for availing these deductions should be in accordance with Section 80CCD of the Income-tax Act, 1961.

Q3: Should I hold the accumulated money in the previous funds or redeem and reinvest in the newly opted funds for long-term compounding?

A3: The decision to hold or redeem accumulated money in previous funds should consider tax implications, underperformance compared to benchmarks, and the need for portfolio diversification. Reinvesting in consistently performing funds may be beneficial, while also considering the long-term track records of the funds.