Should I invest in a mutual fund or SIP? I want to either invest around Rs 1 lakh at a stretch or Rs 3,000 each month, in the case of an SIP for at least five years.
-Suresh Ahlawat
An SIP is just a method of investing in a mutual fund. It is an abbreviation for Systematic Investment Plan (SIP). That means you invest fixed amounts at pre-determined periods in a fund. Depending on the NAV on the date of your purchase, you will get units assigned to you. The three types available are: Quarterly SIP (invest in units once in three months), monthly SIP (every month) and daily SIP (every day).
We do not advise you to invest your money at one go. Invest in a fund regularly over years. This way, market timing does not play a role in your investments.
You sound like a first-time investor. If so, we suggest you opt for two balanced funds, with monthly SIPs of Rs 1,500 in each. Later, when you are building a portfolio, you can go in for a pure equity scheme. Consider DSPBR Balanced, Canara Robeco Balanced or HDFC Prudence.
What happens to the dividend mutual funds receive from companies in which they have invested? Is it added to the fund’s net asset value (NAV)?
-Nitin Bindal
Yes, if stocks in a portfolio are the beneficiaries of bonus shares or dividends, it is ploughed back into the portfolio and hence, ultimately, reflected in the fund’s NAV.
I plan to do a systematic investment plan (SIP) in Magnum Contra, DSPBR Equity, HDFC Top 200, Fidelity India Growth and Quantum Equity. Your views?
-Meera Nambudiri
Your fund selection is good. If we take an overall view of this portfolio, your equity allocation is 94 per cent, the balance being in debt and cash. Though the top 10 stocks are all large-caps, the mid- and small-cap allocation is around 33 per cent.
We have two suggestions here. The first being that you replace a fund that falls in the large- & mid-cap category with a large-cap fund. Consider Franklin India Bluechip or IDFC Imperial Equity Plan A.
Second, you can do with just four funds. If that is alright, you can drop Magnum Contra.
I am a beginner with mutual funds. I would like to know the difference between a regular equity MF and a tax-saving fund. Do all MFs offer the tax benefit under Section 80C? Can I withdraw my money at any time from a MF? I would also like to know the difference between an equity and debt fund.
-Raghu
A regular equity fund and a tax-saving fund have one factor in common. They both invest in stocks across sectors. In other words, both are equity diversified funds. They may have a market-cap tilt; for instance, some funds may invest more in large-cap stocks, others in mid-caps, while still others may have a multi-cap tilt.
The difference is that a tax saving fund, called equity-linked savings scheme (ELSS), offers the benefit under Section 80C. No other category does.
If the fund is open-ended, you can sell your units any time. If it is an ELSS, then your money is blocked for three years. If the fund is closed-end, then for the determined tenure, you cannot buy any units of the fund. Technically, you cannot even sell during the fund tenure. However, many give an option to exit after paying an exit load.
Just like an equity fund invests in stocks listed on an exchange, a debt fund will invest in fixed return instruments or debt instruments that are traded in the debt market.
