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‘Tax-saving MFs are ideal at the start of your working life’

Mint, Hindustan Times and NDTV, bring you a personal finance show, Let’s Talk Money. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, senior anchor, NDTV, aims to answer viewers’ questions about money-related issues.

business Updated: Aug 08, 2010 21:50 IST

Mint, Hindustan Times and NDTV, bring you a personal finance show, Let’s Talk Money. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, senior anchor, NDTV, aims to answer viewers’ questions about money-related issues. Here are edited excerpts from the show that aired over the weekend on NDTV Profit and NDTV.

Srirama Popuri, 30, software engineer from Pune asks:

Recently I have been blessed with a baby girl. For the education of my child I want to invest around R1 lakh. Please guide me where to invest. Also let me know the best SIP (systematic investment plan) to invest in.

Halan: Time is on your side for the R1 lakh investment that you want to make for your daughter. You have 15-20 years and I would ask you to look for diversified equity funds. My suggestion is that you stagger that investment across five months. I am going to recommend two schemes for you. Now these are coming out of Mint 50, which is a list of 50 mutual funds which Mint has curated so you don’t have to look at the 5,000 schemes out there. Out of that are HDFC equity and Birla Frontline Equity. HDFC has given 27 per cent year-on-year (return) over the last 5 years, Birla Frontline has given 25 per cent. As for a long-term investment for yourself, I think it would be fair to do the same with your money as well; get into a SIP, keep the number of products small so you could bundle your money with the money of your child and just keep on investing in these two...

Gautham, 32, IT industry employee from Chennai asks: the following are my current investments: 1. ELSS (equity-linked savings scheme) — Sundaram BNP (dividend), Reliance (d), SBI Magnum (d), 2. PPF annual investment R10,000. I wish to get into other mutual fund types via SIP route. Please let me know the MF types that I need to get in with specific names. I am planning to invest R2,500 to R3,000 a month via SIP.

Natarajan: How much are you putting in these three ELSS schemes?

Gautham: R40,000-50,000 (p.a.)

Natarajan: In that case, you are doing very well. Very few people chose to invest in ELSS and get both the tax advantage and the returns of the equity market before exhausting their PPF limit of R70,000. You’ve invested more in equities-linked tax saving MFs and that’s what we recommend at early stages of your working life. Continue with the same break-up of investments till you exhaust your tax saving limit of R1 lakh a year...

All your tax saving schemes — Sundaram BNP Tax Saver, SBI’s Magnum Tax Gain and Reliance ELSS series have above-average performance though they are not the best in there category. Better performing and more steady ones are: Canara Robeco Equity Tax Saver, Fidelity Tax Advantage and Religare Tax Plan.

But if you’ve already put away some money in your existing ELSS funds for the year, just continue with those.

For now, don’t go in for diversified mutual funds — you may get higher returns but those are not guaranteed — and you don’t get the section 80 C advantage. Once the direct tax code comes into effect in April 2011, you should go and check either Mint 50 list of best mutual funds or 5-star rated funds on valueresearchonline.com and take a call.