There are 3 posts that appeared on Unovest Blog and unless you have signed up to receive the posts in your inbox, you are likely to have missed reading them.
What is the investment alternative to Bank FDs?
Alternative to Bank FDs has been one of the hottest searches by investors. Low returns plus the taxation doesn’t make it attractive enough. Hence, the search for the alternative. The following two posts discuss 2 of these options that you can use instead of Bank FDs.
Ultra Short Term Funds – The alternative to Bank FDs
An attempt to help you understand Ultra Short term category and what should you look for when selecting one.
Liquid Funds – Make your cash work harder
Why just 4% interest of a savings bank account? You can make your cash work much harder. This post describes how.
Growth or Dividend option – which one to choose?
One of the questions that has bothered the new investor is which option should s/he choose when investing in mutual funds – the growth option or the dividend option.
A lot of this choice is driven by the taxation that is applicable to mutual funds. In the following post, you can understand the working of the growth and dividend options as well as what should you choose when you make your investments .
Growth vs Dividend option in mutual funds– what should you choose?
Happy Learning! As always do share your feedback.
Hello Mr Vipin,
Please consider my SIP portfolio. My objective is a wealth building portfolio with withdrawals in 5 yrs, 10 yrs and 15 yrs. I am willing to undertake moderately high risks.
For 5 yrs –
1. Birla SL Dynamic BF Ret(G) – 1.5k – Debt Short Term
2. DSPBR MicroCap Fund Reg (G) – 1k – Mid & Small Cap
3. HDFC MidCap Opportunities Fund(G) – 1k – Mid & Small Cap
4. Franklin India Smaller Growth Cos. – 2k – Mid & Small Cap
(Planning to Start this SIP)
For 10 yrs –
1. BNP Paribas Equity Fund(G) – 1.5k – Large Cap
2. ICICI Pru Focused BlueChip Eq Fund(G) – 1k – Large Cap
3. Mirae Asset Emerging BlueChip-Reg(G) – 2K – Mid & Small-cap
4. ICICI Pru Value Discovery Fund (G) – 1k – Diversified
(Planning to Start this SIP)
5. L & T Value Discovery Fund (G) – 1k – Diversified
(Planning to Start this SIP)
For 15 yrs –
1. SBI Blue Chip Fund (G) – 5k – Large Cap
(Planning to Start this SIP)
• Please rate my Portfolio out of 10 as per my objective. Do you suggest any changes in it to meet my objective.
• Is SIP in any of the above MFs applicable for tax saving ?
Regards ASHAY PAL.
Dear Ashay
I am glad that you are making an effort. However, you need to view your investment choices a little more critically. Quick comments:
Mid/small cap funds should NOT be a part of your short term portfolio. Rely on ultra short term/short term funds for that purpose. If at all, you need equity only large cap funds.
Mid/small cap funds should be there in your 10 year plus portfolio and somewhat in your upto 10 years portfolio.
None of your selection qualifies for tax savings. You need not have multiple funds, about 4 to 6 funds should be good.
More than the rating you need to focus on to study your choices well.
Thanks.
Dear Vipin,
It was comforting to read your blog when I am contemplating moving my investments from FDs to other avenues yielding better post tax returns with comparable safety and convenience. I will be grateful if you can answer following queries-
a) FD can be used for augmenting income/pension on periodic basis. How does one achieve this while investing in debt funds.
b) Is the tax treatment similar in LT debt funds, FMPs, CDFs, CBFs etc. Also explain the tax implication of query in a) above.
c) Keeping in mind requirement in a) above your views on investing in tax free bonds and suggestions thereto.
Thanks and regards
Veteran and Gp Capt Malhotra
Dear Gp Capt Malhotra
Thanks for the comment and the query. to answer your questions:
a) With debt funds, you can choose the dividend payout option to receive cash flows from your investment. However, these payouts may not be regular always. In that scenario, you can redeem/sell some of the investments to meed to your cash flow needs.
b) All debt funds have similar taxation. Any gains made over long term (after 3 years of holding) attract capital gains tax @20% post indexation (that is adjustment for the CPI Index issued by IT Department). The short term (less than 3 years) is taxed at the rate of your income tax bracket. Dividends are tax free in your hands but the mutual fund will pay tax at 28.84% on all payouts. Read this note to understand more: http://www.unovest.co/2016/06/growth-vs-dividend-option-mutual-funds/
c) If you fall in very high income bracket, you can use tax free bonds as a tax efficient investment. Not sure if all of them would payout dividends to help you increase income. However, such bonds are not available often and also have a lock-in.
Hope this clarifies.
Regards.