MF Query Board

Readers are requested to send only one query at a time so that more readers get a chance. Have questions relating to any aspect of personal finance. Ask DSIJ at editorial@DSIJ.in and get your queries resolved.

I had started SIP in HDFC Mid-Cap Opportunities Fund in 2017.I stopped SIP as it was showing me loss. So, should I continue investing in this fund or should I move out of it and invest in some other fund? Please advise.
- Ravi Arora



The loss that you may be currently seeing is due to the fact that you have invested in the fund when the markets were doing well. However, right now, the markets are down from that level and so you are seeing the loss. Nevertheless, the fund that you have invested in is a good fund as it has beaten its benchmark consistently. However, in the short-term, it has failed to beat the category performance, although in the long-term period of 3 years, 5 years and 10 years, it has beaten its category performance. Even if we look at its performance in 2008 where the markets were going through rough patch, it managed to fall less as compared to its benchmark and category. Even in the year of 2018, when you were seeing loss, it fell less as compared to its benchmark and category. It is also well-diversified as the maximum allocation to a single stock is only 4.08 per cent. The fund is managed by Chirag Setalvad since 2007. Therefore, one-year period is too short to judge the performance of the mid-cap category. It is better to remain invested in the mid-cap category for more than 5 years to reap good benefits. You can continue the SIP in this fund and also if you have lumpsum amount available, then instead of investing via SIP, it is better to invest via lumpsum as the markets are currently in the downturn.

Paying Rs. 65,000 per month. I require cash by Sept first week. Can I redeem the SIP major amount or should I redeem the SWP? I have about Rs. 27 lakh. Which route should I take? - Chandrashekhar Rao

From the information provided by you,your objective is not clear. But it is assumed that you require Rs. 65,000 per month and you wish to either withdraw Rs. 27 lakh and park it in savings account or do SWP. So, investing lumpsum amount of Rs. 27 lakh in debt fund and doing SWP would be a better option. By doing so, you would be able to use Rs. 27 lakh for four years (assuming 8 per cent rate of return). However, if you withdraw the amount of Rs. 27 lakh and put it in savings bank account, then it will last for 3years 8 months (assuming 3.5 per cent rate of return). So, it is better to go for SWP. It is to be noted that we have not considered taxation part.

I am a retired person and require regular income. For this purpose, I have invested in HDFC Balanced Advantage Fund with dividend option. Is it the right way? Please suggest.
 - Pawan Rustogi 



HDFC Balanced Advantage Fund falls under dynamic asset allocation or balanced advantage fund sub-category and hybrid being the main category. As per SEBI, dynamic asset allocation or balanced advantage funds are those funds that invest assets in equity and/or debt that is managed dynamically. As per your query, you are a retiree and need a regular income via dividends from this fund. The first thing to understand is that the dividend is paid from the capital itself. So, it is not something like dividend paid on shares of the company, which is paid from the profits of the company and not from your capital. It is also prudent to note that to pay or not to pay the dividend is the discretion of the mutual fund. This means that it is not mandatory on the part of the mutual fund to pay the dividend. So, rather than dividend option, it is better to go for Systematic Withdrawal Plan (SWP) wherein you can withdraw the required amount at pre-determined regular intervals and allow rest of the fund to grow. Let us take an example to understand this better. Let us say that you have invested Rs. 25 lakh in HDFC Balanced Advantage Fund. You wish to have a monthly income of Rs. 50,000. If you go with dividend option, then at the end of the first year, your fund balance would be Rs. 18.77 lakh, whereas if you invest in the growth plan, then at the end of year one, your fund value would be Rs. 19.63 lakh. The total dividend that you would have got for one year is Rs. 2.84 lakh as against Rs. 6 lakh (Rs. 50,000 x 12) annual requirement. Due to this, for the remaining shortfall, you would withdraw from the fund itself. Here, we have neither considered dividend distribution tax of 10 per cent nor have we considered the short-term capital gains tax on withdrawal. However, the dividend plan would often carry two kinds of taxes, one is the dividend distribution tax and the other is the capital gains tax on sale of the units.Therefore, it is better to do a SWP rather than opting for dividend plan.

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