Every week, personal finance experts answer our readers’ queries in the wealth edition. Here is a query on financial planning answered by an expert.
I am selling a property and would like to invest about Rs 40-50 lakh which I do not need for the next five years. I am investing this for my retirement. What are the best investment options available and what should be the asset allocation? I would not like to take too much risk.
Raj Khosla Founder and Managing Director, MyMoneyMantra.com replies: It is prudent to invest surplus amount into a mix of debt and equity mutual funds according to your goals, investment time horizon and risk appetite. With moderate risk appetite you should stick with 60:40 equity to debt ratio. After the sale of property and assessment of capital gain taxes on property, invest the lump sum amount in liquid funds and start a Systematic Transfer Plan (STP) of Rs 10,000 each in Axis Bluechip Fund, Kotak Bluechip Fund, UTI Flexi Cap Fund, Invesco India Multi Cap Fund and Mirae Asset Emerging Bluechip Fund for 60 months. Review and rebalance your portfolio every 3 years. In case of any tax liability arising out of property sale, please discuss with a tax consultant and reduce tax burden by investing in 54EC bonds. You should also ensure adequate health and life insurance; and up to Rs 10 lakh of emergency fund parked in guaranteed return products, with easy liquidity such as bank fixed deposits.
I want to buy property in 2023-24. I have investments in equity and debt instruments like fixed deposits in banks and private companies, NCDs and tax-free bonds. I wish to use the debt investments for the purchase. I will be receiving Rs 1.3 crore in 2022 and Rs 1 crore in 2023 from maturity proceeds. Where should I park my funds till the deal is done?
Prableen Bajpai Founder FinFix® Research & Analytics replies: Since the money is needed to buy property, preservation of capital is crucial. Additionally, the duration of investment will be short so accessibility to the amount will be needed. If we take all these factors into consideration along with taxation, arbitrage funds emerge as a viable option. Arbitrage funds leverage the price differential in the cash and derivatives market to generate returns. The difference between the price of the same security in the two markets is the fund’s gain, excluding other costs. These funds are generally low risk as each security is bought and sold simultaneously. If the funds are redeemed within one year, the gains are taxed at 15% while if redeemed after one year, a tax of 10% is levied on profits exceeding Rs 1 lakh. You can also consider fixed deposits and debt funds with low duration.
My son, 25, started working two years ago. He can save Rs 1 lakh a month. He has Rs 5 lakh in his savings bank account. He has invested Rs 1.5 lakh a year in PPF for two years now and Rs 50,000 in NPS. He is investing Rs 5,000 a month through SIPs in HDFC Sensex Plan, Rs 12,500 in ICICI Pru US Bluechip Equity, and Rs 12,500 in Axis Blue Chip Fund. How should he invest the Rs 5 lakh lying in his bank account? Where can he invest the rest of the investible surplus every month?
Nitin Shanbhag Sr. Executive Group VP- Motilal Oswal Private Wealth replies: Your son has to decide how much allocation he would like to have in equity. The domestic equity market is supported by strong fundamentals which are likely to sustain going forward. Since he can save Rs 1 lakh per month, he can afford to take higher allocation to equity say 70-80% of his total portfolio since he is quite young. The Rs 5 lakh which is lying in his savings bank account can also be shifted to equity funds. We would suggest deploying 50% (Rs 2.5 lakh) immediately, and balance Rs 2.5 lakh over next 3 months in equal instalments. Since he already has exposure to two large-cap funds, along with a US focused fund; we would suggest a combination of multi-cap funds like HDFC Capital Builder Fund, ICICI India Opportunities Fund and Kotak Equity Opportunities Fund. For the Rs 1 lakh that he saves per month, he can decide how much to invest in equity and then put the money in the above-mentioned multi-cap funds, and the remaining should be invested in fixed income passive funds which have high quality portfolio, with roll-down strategy.