Ask our experts – June 2023

1. For the past 27 months, I have been making regular SIP investments in AXIS Focused 25 (Regular-Growth). I have invested a total of Rs. 54,000. However, the fund value has come down and is now worth Rs 48,000. Should I keep investing in this fund?  Could you also recommend a different fund for me? – Ajish M, Maharashtra

A focused fund’s investment strategy works on a concentrated portfolio, and hence it needs a longer investing horizon for the fund to deliver good returns. Going by our internal analysis, this scheme has shown significant underperformance in the last 2-year period and that has also affected its 3- and 5-year performance, as compared to its benchmark and the category.

We would suggest shifting the SIP to the following recommended focused funds.

2. I’m a 37-year-old IT professional. A year ago, I took a home loan for Rs. 40 lakh. The loan has a 15-year term, and the EMI is Rs 43,500. I received a salary hike when I joined a new company. I can now save an additional Rs. 15,000–20,000 per month. I intend to invest this money for the next five years and use this amount to repay the loan.  How much money can I make during this time? Can you recommend some good funds to invest in? – Ashwin P, Chennai

It is a good decision to channelise the surplus towards investments. Here are our views on the queries:

Let’s first look at the investment prospects of SIPs. Rs.20,000 invested for 5 years, at an expected return of 12% per annum, should grow to be about Rs.16.2 lakhs (including Rs.12 lakhs invested amount). Now this may not be sufficient to repay the entire outstanding loan after 5 years.

Alternate suggestions:

1. You can consider extending the investment period by another year or two, to 7.5 or 8, to improve your chances of receiving higher returns and value growth. For instance, using the same example, the maturity amount is expected to range between Rs. 28 and Rs. 30 lakhs. By then, your loan balance would have reasonably decreased as well, allowing you to pay off the debt entirely or at least a sizable piece of it.
2. Increase your SIP amount further (at least double of it, around Rs.35,000 to Rs.40,000 per month), so that you could target clearing off your liabilities by around 5 years’ time.

But please remember these estimates are based on the assumption that returns will average 12% per annum and the actual returns may vary.

Since we do not have sufficient information about your risk profile, listed below are our recommended Flexicap and Multicap funds:

3. I am a senior citizen in the 20 % tax slab. I have investment in a few Debt funds.Debt funds, in my opinion, are now not very appealing due to recent changes in tax consequences.  Is that right, sir? Could you recommend some secure investments for me with an after-tax return of 7-8%? – Sitaraman Krishnan, Delhi   

The changes made to the finance bill pertaining to the debt funds, apply to investments made on or after 1^st April 2023. All investments made prior to that will still qualify for the indexation benefits (as per the current tax laws).

We believe that debt funds still could be considered by those who look for stability in returns with high quality portfolio, daily liquidity, participate in the falling interest rate cycles, etc or even if one would like to take exposure to funds focusing on credit risk strategies. There are a whole lot of categories to choose from.

Given the current investment options, it is difficult to recommend funds with the “safety tag” with a post-tax return of 7-8%. One option, albeit lower returns, is arbitrage.

It you are willing to take some amount of equity exposure, then you have few categories that might suit your expected returns criteria. You can look at Conservative Hybrid or Balanced Advantage fund categories.

Below are our recommended funds in Balanced Advantage category: