I have been investing in equity mutual funds for the past 10 years. I am 52 now. Is it a good time for me to move to debt avenues?
- Jai Bhagwan
Over the past 10 years, since you have been investing, the stock market has witnessed a few cycles wherein investments would have gone up and down. That you have been invested through these cycles shows your discipline in investing. If your investment was to create a retirement corpus and live off it, you are right in thinking about moving your funds from equity to debt. This strategy is adopted to cushion the stock market volatility that can impact your retirement nest egg considerably if the markets swing downwards. However, if you are the sort who can still take some market risk; make amends to your existing fund portfolio with a mix of balanced funds and debt funds that will help you get the upside of equity and also offer income in retirement.
I have been investing in SIPs since 2006. My unrealised gains are 50 per cent, which had at one time been a loss of 63 per cent. I am a long-term investor and don’t need this money in the near future. Am I adopting the right strategy?
- Rajesh Ahuja
Systematic investing goes a long way in long-term wealth creation. Your anxiety is understandable. You need to understand the need for rebalancing and how it works. Rebalancing is a way to re-organise your portfolio such that you maintain a pre-defined debt to equity ratio. This way, you will be protected against the downfall, as well as soaring markets, gaining in both situations.
It is important that you go for periodic rebalancing, so that you do not expose your portfolio to more risk than you can handle. Ideally, one must rebalance a portfolio once a year but in volatile times, one may consider half-yearly or even quarterly rebalancing, to ensure that the asset allocation doesn't get deranged.
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I have earned short-term capital gains of around Rs 5,000 by trading in Gold exchange-traded funds (ETFs). What is the applicable tax rate for this short-term capital gain?
- Desh Raj
Booking profits is a good sign on the investment bet you took. But, there are tax implications on the gains you make. Your gains must not be eroded by the tax liability you face. When computing income tax, gold ETFs are treated as debt funds, not equity. On redemption, the units of gold ETFs held for more than a year qualify for a long-term capital gain tax of 11.33 per cent without indexation or 22.66 per cent with indexation. As you have made a short-term gain, which applies when the holding is less than a year, the short-term capital gain will be clubbed with the income of the individual investor, to be taxed in line with the applicable tax slab of the investor. So, the short-term capital gains of Rs 5,000 will get added to your income and be taxed as per the income bracket you fall under.
I have a few funds where the NAV is almost 50 per cent lower than when I invested. I want to know if this is the right time to exit. Does it make sense to sell these units at a loss and pick up units of other, better MFs?
- Pavan Kumar
Your predicament is understandable. But there is a lesson here that will help you in the future. You should select a fund with a proven performance history, which is consistent. Such funds can be held on to, even if they are sometimes poor in performance, as they have what it takes to spring back. However, if the fund you hold has not been a stable performer in the past, it is better that you exit it and invest in a better one, with a proven track record. There is an opportunity loss if you do not cut losses and invest in more promising fund schemes. Also, track your investment regularly to know which fund is losing sheen to make necessary changes.
Value Research