[JediKnight]

Hi Guys,

I have to park some funds for 5 years or above. Capital protection and reasonable returns ~ 9.5% (before tax) are the goals.

I am thinking of splitting the corpus into 4 equal parts. And then invest them in four conservative hybrid funds of 4 different fund houses.

Why 4 different fund houses ?

To mitigate risk of fund house going belly up. ( am i paranoid ? )

Why conservative hybrid fund ?

Since conservative hybrid funds invest 75 to 90 % in debt ensures capital safety. The 25% to 10% equity component may be give an extra 1-2% return in case the market rallies.

Does this look like a good strategy ?

[Simhi]

Originally Posted by JediKnight

Since conservative hybrid funds invest 75 to 90 % in debt ensures capital safety.

Beware, capital protection is not guaranteed even by Debt mutual funds.

[blorebuddy]

Originally Posted by callvvijay

I believe, this relates to the mode of holding the Mutual fund that we are investing in and is not related to the mode of our bank-account holding.

Your understanding is correct. This is for the MF you are investing.

Originally Posted by callvvijay

In both the cases, there is only one tax status option - 'Single'.

This is also correct. Even if you invest in either or survivor mode in MF, still the primary (first) holder is responsible for the tax to be paid on this investment.

[DigitalOne]

I have observed that in Debt funds have been giving good returns in the last 1-3 months, probably in anticipation of interest-rate drop.

Just wanted to highlight a trend. 1-3 months a very very short time to analyse anything. Please do NOT consider this post as investment advise. Do your own research.

Debt Funds are NOT risk free. In the last 3 three years, I have lost considerable money in supposedly safer debt-funds.

[SmartCat]

Originally Posted by DigitalOne

In the last 3 three years, I have lost considerable money in supposedly safer debt-funds.

How on earth did you lose considerable money in debt funds over 3 year period? I just checked valueresearchonline - over a 3 year period, the worst debt fund has returned 4% CAGR while the best debt fund has returned 10% CAGR.

Never sell because NAV falls in a debt fund. It will eventually recover with time. To get an idea about maximum time you have to wait till NAV recovers, you need to look at the 'Average Maturity' data of a particular debt fund in valueresearchonline. Eg: Aditya Birla Corporate Bond Fund
https://www.valueresearchonline.com/...schemecode=420



What the above table means is that -> if you hold this fund for 2+ years (avg maturity: 2.38 yrs), you will get approximately 8% plus (Yield to maturity: 8.58%) returns. Assuming there are no major credit defaults. To sidestep credit risk, you need to choose a fund with a large number of securities. That's why looking at number of securities (151 in this case) data is important too.

Always look at this data before investing in a long term bond fund. If you are not comfortable holding a debt fund for average maturity period, you should not be holding that particular debt fund.

[DigitalOne]

Originally Posted by smartcat

How on earth did you lose considerable money in debt funds over 3 year period? ....

Never sell because NAV falls in a debt fund. It will eventually recover with time.

.....

Always look at this data before investing in a long term bond fund. If you are not comfortable holding a debt fund for average maturity period, you should not be holding that particular debt fund.

Three years back when I started Debt-fund investments, I didn't do too much research, invested in funds that, at that point of time, were showing good 1-year returns. Some of them were Long-term Gilt funds. Post-demonetization interest rates were supposed to come down but it didn't happen. Instead rates went up, and all the long-term Gilt funds turned negative.

Then IL&FS defaults was another blow. Lost money in DSP Credit Risk Fund, Motilal Oswal Ultra Short-Term Fund, and another couple of ABSL FMPs (notional loss).

Earlier my research on debt funds has been poor. Also pre-SEBI reclassification there was much more confusion. We live and we learn .

[dhruvdangi]

I am confused if investing in Mutual funds is better than ULIF, my bank manager is suggesting "Kotak CLASSIC OPPORTUNITIES FUND" which has given CAGR of 12.8% in the last 7 years. They provide 12 free switches and gives tax benefits of Section 80C and 10(10D).
Comparing this to Nifty 50 which has given a CAGR of ~12% (not including the dividends) this seems to be a better option because of the tax/ insurance benefits.
I'm currently in my early 20s and realize that a change of even 1-2% can make a huge difference in the long term.
Initially, my plan was to invest in index and debt funds and switch between them only once in 2-3 years when the market seems to be overbought or oversold. But switching funds seems to be very costly because of the tax involved in it.
A CAGR of 15% over 40 years with most tax benefits is what that I'm aiming for.
Also, is there any index mutual fund with ELSS benefits in India?

[Jaguar]

Originally Posted by dhruvdangi

I am confused if investing in Mutual funds is better than ULIF, my bank manager is suggesting "Kotak CLASSIC OPPORTUNITIES FUND" which has given CAGR of 12.8% in the last 7 years.
Comparing this to Nifty 50 which has given a CAGR of ~12% (not including the dividends) this seems to be a better option because of the tax/ insurance benefits.
Also, is there any index mutual fund with ELSS benefits in India?

My two cents. Keep your insurance separate from investments. And don't restrict yourself to index funds.

[dhruvdangi]

Originally Posted by Jaguar

My two cents. Keep your insurance separate from investments. And don't restrict yourself to index funds.

Even I'm not interested in the insurance part but being able to switch from equity funds (without the need to pay taxes) when the market is not expected to perform well is something I'm looking for.

[DigitalOne]

Originally Posted by dhruvdangi

I am confused if investing in Mutual funds is better than ULIF, my bank manager is suggesting "Kotak CLASSIC OPPORTUNITIES FUND" which has given CAGR of 12.8% in the last 7 years. They provide 12 free switches and gives tax benefits of Section 80C and 10(10D).

Please carefully read the fine print in ULIPs. There are (or used to be, when I last looked them up 6-7 years back) charges for which units get deducted from your account. Which essentially means, the CAGR of the NAV is not the right indicator. Your effective returns are lesser than that. These agents or relationship managers never tell you that.

[blorebuddy]

Originally Posted by dhruvdangi

Even I'm not interested in the insurance part but being able to switch from equity funds (without the need to pay taxes) when the market is not expected to perform well is something I'm looking for.

1) MF scores over ULIP any day. Please browse through/search through this thread. You will get links to articles which substantiates this. You can google also.
2) Do not invest based on a Bank Manager or Investment advisor or any other sales person's advise who does not charge you for their advise. They will sell what is good for their pocket than what is good to you.
3) Considering that you are in twenties and planning to invest for long term( assuming 10 years+) I would suggest a good multi-cap fund with long track record without worrying about market condition and track the fund performance. Fund managers will take care of adjusting the portfolio based on the market condition.
4) If you want to be little conservative and very particular about managing the debt vs equity, you can invest in a Hybrid fund which essentially maintains the debt portion and reduces the risk of loosing capital, try to maximize the returns.

[sansvk]

Originally Posted by dhruvdangi

I am confused if investing in Mutual funds is better than ULIF

My experience with ULIPs is that they are not managed well. They are mostly on auto pilot and try to mimick some mutual funds. After a few years, the company launches a new one and old ones are forgotten.
The free switches are useful, for e.g. you could shift from an aggressive equity to a low risk liquid portfolio without any hassles - i wish mutual funds had this option without any tax outgo.
For tax savings, utilise pf, ppf and elss and for investments stick to equity mutual funds.

[AkMar]

One of my ongoing SIPs is in large cap SBI Bluechip Fund. Off late I am thinking of stopping this SIP and starting a new one in a Multicap fund. Reason for this being the changed regulations which mandate large cap funds to keep 80% assets in top 100 companies (or something similar). What do members think of this?

[DigitalOne]

Originally Posted by AkMar

One of my ongoing SIPs is in large cap SBI Bluechip Fund. Off late I am thinking of stopping this SIP and starting a new one in a Multicap fund. Reason for this being the changed regulations which mandate large cap funds to keep 80% assets in top 100 companies (or something similar). What do members think of this?

May not be a bad idea. After re-classification, large-cap funds will find it increasingly difficult to beat the indices. Freefincal has a series of articles on the topic.

[srsrini]

Originally Posted by DigitalOne

Please carefully read the fine print in ULIPs. There are (or used to be, when I last looked them up 6-7 years back) charges for which units get deducted from your account. Which essentially means, the CAGR of the NAV is not the right indicator. Your effective returns are lesser than that. These agents or relationship managers never tell you that.

This is an excellent point.


In mutual funds, the TER is deducted from the fund corpus before the NAV is calculated. So if you compare the NAV in two different dates, it is the actual return seen by the investor.


In ULIPs, units are cancelled to pay for expenses - including mortality charges, admin charges, etc. So the returns from the underlying fund are only notional.


Morningstar has a page each on summary returns from MFs and ULIPs. That page is proof that ULIP funds perform worse than mutual funds.



ULIPs at: https://www.morningstar.in/tools/ins...rformance.aspx


MFs at: https://www.morningstar.in/tools/mut...rformance.aspx


You can choose various periods to compare.



I looked to analyze the impact of LTCG on the comparison. I really loaded the numbers in favour of ULIPs. I took the lowest cost ULIP, took a less-than-top performing equity fund, etc. I could still show that mutual funds perform better. It is in my blog at: https://srinivesh.in/blog/no-ltcg-on...-ulips-better/