Budget 2020

I want to invest Rs 40,000 a month in equity mutual funds. Which schemes should I consider?

I am 44 with a good appetite for risk. I can spare Rs 40,000 a month to invest in equity mutual funds for eight to 10 years. Please suggest some good mutual funds keeping diversification in mind. Does it make more sense to invest in lump sums on days the market falls substantially?

Dev Ashish, Founder, StableInvestor and Sebi-registered investment adviser replies: Given your high-risk appetite and time horizon, you can begin with three or four equity funds from amongst HDFC Nifty50 Index, ICICI Pru Nifty Next 50 Index, Parag Parikh Flexicap (Long Term Equity) Fund and Mirae Asset Emerging Bluechip. As the years’ progress, reduce equity exposure and gradually switch to debt as you get closer to your goal in 8-10 years. With regards to automating SIP vs investing manually on days of large falls, it sounds appealing and theoretically, it makes sense. The idea of buying low (on market falls) is intuitive. But the problem might be in its practical implementation. Imagine yourself waiting for the big falls for several months while markets continue to move up strongly. You will then miss out on buying at comparatively lower prices in months in between. So unless convinced of getting the approach perfectly right, opting for SIPs is more realistic from a logistical and implementation standpoint. It is also important to highlight that one should not forget the existing corpus and whether its asset allocation is proper.

My brother-in-law is 56 and single. He suffers from cerebral palsy. His father left him an FD of Rs 46 lakh after TDS for his maintenance, which matures in another six months. A post office monthly income scheme fetches him about Rs 2,800 per month. He plans to draw a sum of Rs 20,000 for his present maintenance. After five years, he wants to draw Rs 50,000 per month for maintenance to take care of his increased medical expenses and employ a nurse. He wants to manage the money without disturbing the principal. How can he achieve this?

Prableen Bajpai, founder FinFix® Research & Analytics replies: “In the current interest rate scenario, there are limited options that are risk-free and yet provide a high monthly interest payout. You should explore debt mutual funds for his investments along with his allocation in the Post Office Monthly Income Scheme (POMIS) and fixed deposits. While POMIS and fixed deposits can provide more predictable incomes, the mechanism of Systematic Withdrawal Plan (SWP) from debt funds can be used to cater to the remaining requirement of money. It is important to understand that the return earned is not fixed and there is some amount of risk in debt mutual funds. However, a portfolio of two or three schemes built after careful selection can provide a solution to his requirements. You can choose schemes from among ultra-short duration and low duration category of debt mutual funds. These funds will have lower volatility amid a changing interest rate scenario and will provide the flexibility to withdraw as per requirement. The return expectations must be kept low, and therefore, monthly withdrawal should be set accordingly. There is no TDS in debt mutual funds. Once he turns 60, schemes such as Senior Citizens’ Saving Scheme must be availed.”