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Mutual Fund Corner: 'I want to invest in US equities, what should I do?'

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Want to invest in mutual funds but don't know how to go about it? Get all your mutual fund related queries answered by our experts, Harsh Roongta of harshroongta.com and Kalpesh Ashar, CFP, Full Circle Financial Planners & Advisors.

Want to invest in mutual funds but don't know how to go about it?
Get all your mutual fund related queries answered by our experts, Harsh Roongta of harshroongta.com and Kalpesh Ashar, certified financial planner (CFP), Full Circle Financial Planners & Advisors.
Parijat Suman calls us from Mumbai. He wants to invest Rs 60 lakh in a mutual fund portfolio to generate regular income for his retired life. He wants advice on which liquid fund to invest in and the composition of his final equity portfolio?
Roongta: First, the way he is going about is excellent as he is not looking to jump straight into the equity. He is thinking of first putting it into a liquid fund and then slowly shifting it to equity. He has mentioned he is about 65 years still a long way to go. People live well into their 80’s and 90’s, so he still has 20-25 years to go, which means you do need some equity component. Now, pure equity at his age even if he is a very aggressive investor is not something that one would advise. So, depending on the risk profile, it can be a combination of these hybrid equity funds that we see now.
If he is very aggressive, you can look at what were the erstwhile balanced funds which are now called Aggressive Hybrid Funds. If you are not that aggressive, if you are only moderate, you can look at an Equity Saving Funds. If you are conservative, you can look at the debt hybrid, where the debt component is much higher. The money that you need, do not take it as dividend. Dividends in a mutual fund makes no sense. Except in one very specific circumstance, dividend makes absolutely no sense. Do it through a systematic withdrawal.
You can keep increasing your withdrawal as inflation comes in. The amount that you have and I think probably the expected returns from each of these, it should be comfortable. You should be able to withdraw inflation adjusted Rs 25,000 for the next 20 years or so. I think that should not be a problem. Which liquid fund to put in? Depending on which of these hybrid funds you chose in, that same fund house put in a liquid fund, so that you can systematically transfer it to the hybrid fund that you would choose.

GN Prabhu calls us from Bengaluru. He has been investing Rs 3,000-4000 per month in multiple funds with a three-year view. He wants to know if he should continue with these funds or reshuffle.
Ashar: The fund component, which he has right now is absolutely fine. He has got fortunately a mix of large mid and hybrid category in the portfolio. So, the fund per se does not need any reshuffle as per the present component. The only thing is that in the last 6-9 months, we have seen that markets have been very choppy and obviously the results of this performance of these funds would not be very great if you look at the returns on this fund.
The real thing, when you do an SIP is the long term view you keep in mind. I would sincerely request that don’t look at the last one year returns. Your fund choice is very good and look at it for a horizon for 5-7 years. Also, considering that you are of 64 years, I think there should be little but more of a conservative bit to your portfolio, because if you look at the fund which you have in your portfolio they are little bit on the aggressive side. I would suggest that you could have a hybrid fund allocation more to the SIPs, which you are doing and then I think you should be good in a 5-7 years’ time horizon.

Anand Kulkarni wants to know if the New Fund Offer (NFO) of Bharat Consumption, Bharat Consumption Fund from ICICI Prudential is a good bet.
Roongta: Rather than answer this specific query, my point is that New Fund Offer, you obviously do not know the track record. I think the track record is very important to decide whether you would want to invest in a particular fund or not. So, any New Fund Offer, not just the one that you have highlighted, I would look at it only if it is coming up with a strategy that does not exist today. If similar strategy exists somewhere else and there is already a whole track record to that kind of a scheme, I would any day prefer a tried and tested scheme over a new fund offer. There is no major advantage of going in for an NFO. There is in fact no advantage at all of going in for NFO.
Ashish Chauhan calls us from New Delhi. He wants to know which fund to invest in Rs 25,000 per month with 7-8 month view.
Ashar: It is a paradoxical situation, which the investment profile is based. However, let me compliment you that at least for the car purchase goal, which you have highlighted, you are on the right track. The amount which you wish to set aside in the next 8-10 months of Rs 25,000 per month has to go into a debt fund, and into the debt fund family also into the ultra-short term funds, not the ones which have longer duration in it. So I would suggest the Aditya Birla Sun Life Savings Fund for that period and hopefully right now, the way the interest rates and all are shaping up, it should give you a better return than your conventional savings account or something. So be focused on that and about your complete profile in which you are investing, I think another query is justified.

Rohit Mandotra writes to us from Mumbai. He wants to know the best way to add US equity exposure into his portfolio and wants advice on which mutual fund to invest in.
Roongta: I think direct investment in US equities is not really advisable unless your amounts are very sizeable, because transaction costs are very high. Please remember if you invest directly in US equity, you would have to report it separately in your income tax returns and that could invite specific scrutiny. So how do you take US equity exposure? Do it through the Indian mutual funds who in turn take US exposure. I think there are three to four major players and this is treated as Indian investment, debt fund treatment for tax purposes. The three or four major players, primarily there is Franklin Fund, which feeds into the US Opportunities -- the Templeton US Opportunities Fund, there is the ICICI US Bluechip Fund, which invests directly into the bluechip, there is a DSP Blackrock Fund and there is an Edelweiss Fund. These are the major funds that allow you to take US equity exposure.
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