Ask our experts- January 2023

Investment queries

Tax saving mutual funds have a 3 year holding period. How does tax calculation happen after 3 years of holding period when redeeming the money. – John Rony

Tax saving mutual funds are equity-oriented investments. The taxation of these funds is same as of equities. Long term capital gains would be taxed at 10% for the gain amount exceeding rupees one lakh. In other words, long term capital gains up to Rs.1 lakh are totally tax free.

What is the difference between ETF and Mutual Funds? And which one is good for long term investments? Is it good to invest in REITs? – Harisankar

Mutual funds are actively managed by fund managers and try to generate maximum return for their clients. ETF are passive investing vehicles just following the selected index. If the fund manager performs well in his stock selection, then there is a possibility of getting better returns in the long term than ETF. If you are planning to include real estate in portfolio the best option is REIT. You may invest 10%-20% weightage of your entire portfolio in REIT.

Which is the best type of mutual fund for a beginner to start an SIP? My friends are suggesting starting with hybrid funds. What is your opinion? – Jaya Prasad

You may select the funds based on your risk appetite. The investment horizon is also a crucial factor. If your goal is very short-term in nature, then you may select debt mutual funds and if your goal is medium term then you may select conservative hybrid or mix of equity and debt mutual funds. In case of long term goals, you may create a portfolio of different equity oriented mutual fund category like small cap, large cap, mid cap, thematic etc. Consult an investment advisor before making any decision.

Today government bonds are giving good, secured yields. In such a case, what should be your investment portfolio if you look at mutual funds, stocks, and bonds. – Sthunoli

You may add government bonds in your portfolio, but the return is limited. The investment portfolio should be based on one’s risk appetite and investment horizon. If you have higher risk appetite and long investment horizon, then you may add more than 60% in equity-oriented investments and vice versa.

Could you please differentiate between PMS and Mutual Fund ways of wealth accumulation, and which is the better way to create wealth over a 10-year period? – Mohamed Basheer

The PMS is designed for selected group of investors but in case of mutual funds which are for everyone. PMS and Mutual Funds are different in many ways such as minimum investment amount, investment portfolio selection, taxation, fees, etc. The PMS is regulated by SEBI and the minimum investment amount is Rs.50 lakhs. Mutual funds allow to invest both lumpsum as well as systematic investment plans. So, you have more flexibility in investment amounts.

Both investments are good for wealth accumulation. The PMS fund manager has more flexibility to increase or decrease the portfolio allocation depending on the market conditions but in case of mutual fund they have to maintain certain limit of allocation in equity, debt and stocks as mentioned in the scheme documents and regulation, irrespective of the market conditions. Therefore, the mutual fund has more diversified approach. PMS have more concentrated approach than the mutual fund so there is a possibility to get slightly higher return than mutual fund in longer term.

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