I have invested Rs 8-10 lakh in the equity market. As I will retire in six years, I plan to move my money to debt instruments, may be from the next year. Given the volatility in the markets, should I start early? What type of debt instruments should I choose?
Even as equity is volatile by nature, it is rewarding for long-term investors. It is among the few asset classes that have the ability to beat inflation. Hence, it would be unwise to exit equity completely.
Assuming you are around 55 years of age and are a conservative investor, you could allocate around 30-35 per cent of your investible funds towards equity.
With regard to your allocation towards debt, you could consider investing in fixed maturity plans (FMPs) offered by various mutual funds. These instruments deliver better tax-adjusted returns compared to other alternatives.
I am not very familiar with non-convertible debentures (NCDs). I want to explore this option for an investible surplus of Rs 3 lakh. How does it work? What are the pros and cons? Would you advise for the same?
NCDs are debt instruments issued by various companies. They carry a fixed interest rate, payable quarterly, half-yearly or annually. If you choose the cumulative option, interest is accumulated and paid along with the principal, on the date of maturity. These debentures have varying tenures for maturity. However, they are not very tax-efficient. Instead, it is suggested you consider FMPs from mutual fund houses. They offer better tax-adjusted returns.
My financial advisor says I should invest in index funds, as I don’t understand the markets. With Reliance Infra and Reliance Communication replaced in the Sensex, would my holding be impacted?
Both new inclusions in the Sensex (Sun Pharma and Coal India) are strong companies. Hence, you may go ahead and invest in the suggested index fund.
The share prices of oil marketing companies went up significantly after the prices of diesel were increased. Many brokerages gave a ‘buy’ call on these. Is this the right time to buy? If yes, what should be the investment horizon?
The steps announced by the government are positive for these companies. However, bulk of their business continues to be controlled by the government. Hence, it would be wise to invest in companies which can decide their future.
I am 35 years of age and have been trading for almost 10 years, albeit only in the cash market. I wish to enter the derivatives segment. On what basis should I choose the contracts? Are the fundamentals of cash and futures market the same?
The futures & options (F&O) market is very different and much more dynamic than the cash market. Savvy portfolio managers use this alternative to hedge their portfolios or benefit from arbitrage opportunities between both the markets. Before dabbling with the F&O market, it is suggested you become aware of the associated risks.
The writer is managing director & principal portfolio manager, Capital Portfolio Advisors. The views expressed are personal. You can send your queries to yourmoney@bsmail.in
