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 wish to invest in tax saving mutual funds. Can you please suggest some good funds for me?
- Shipra Shrivastava

When it comes to saving tax, there are various options available such as tax saving fixed deposits (FD), Public Provident Fund (PPF), life insurance premiums, including premium towards Unit-Linked Insurance Plan (ULIP) and Equity Linked Saving Schemes (ELSS). We are glad to know that you are making the right choice. However, it is advisable that you should invest in them as per your risk appetite. Remember, although ELSS does well in the long term, it does carry risk which is higher than tax saving FDs and PPF. Therefore, you should think of investing in PPF or tax saving FDs and ELSS in proportion that matches your risk profile.

For instance, if your risk profile is moderate, you can consider investing 50 per cent in ELSS and remaining 50 per cent in tax saving FDs or PPF. This will help you manage the risk of your investment as per your risk tolerance level. However, if you are an aggressive investor, then we would suggest you to invest 100 per cent in ELSS and create a system wherein you only having to invest Rs 4.5 lakh and reap the tax benefits forever. In this system, you can invest Rs 1.5 lakh in, say, the year 2022, 2023 and 2024, which would be locked-in up to 2025, 2026 and 2027, respectively. Post every lock-in period, you need to redeem and re-invest the corpus. This way you can reap maximum tax benefit till you keep following this system.

Now coming to your query, we would suggest two funds for you. One is DSP Tax Saver Fund and another is Axis LongTerm Equity Fund. The rationale behind suggesting these funds is that these funds have performed really well historically on a long-term basis. Moreover, within the category, these two funds are consistent performers. Speaking about the risk aspect, these funds have one of the lowest maximum drawdowns within the category. Refer to the table below for more details.

Out of 1,722 three-year return observations, DSP Tax Saver Fund fetched negative returns 3 per cent of the time, while Axis Long-term Equity Fund had no negative return observations, with its minimum return being 0.5 per cent. However, as we move on to five-year rolling returns that had around 1,477 observations, both the funds experienced no negative returns, with minimum returns of Axis Long-Term Equity Fund and DSP Tax Saver Fund being 3.7 per cent and 1.3 per cent, respectively

I wish to invest Rs 1 lakh on a monthly basis until I retire. My current age is 40 years and I plan to retire at the age of 55. Please suggest where I should invest.
- Rajesh Prabhakaran

While planning for your retirement, it is crucial to calculate the retirement corpus properly. The retirement corpus cannot be estimated accurately as external factors have their own ramifications. However, it is vital to at least be near to the actual corpus required. Therefore, before you understand how much to invest, it is important to know how much you actually need. As you have not mentioned your current monthly expenses, post-retirement financial goals and your risk profile, it is difficult to solve your query accurately. Therefore, to help you understand how things work, we would take an example. Let us assume your current monthly expense is Rs 50,000, your expected rate of return is 12 per cent and inflation is seven per cent before as well as after retirement, your life expectancy is 90 years, your current age and retirement age as mentioned in the query and your risk profile is moderate.

Based on all these parameters, your retirement corpus works out to be Rs 2.9 crore. Remember, this is only to cover your day-to-day expenses as per your present lifestyle. We have not accounted for your financial goals post retirement such as health corpus, world tour, philanthropy, etc. The corpus would be higher if we account for the same. You can achieve Rs 2.9 crore in 15 years by investing Rs 61,000 per month for 15 years. However, if we get more conservative, you can invest Rs 72,000 at 10 per cent to achieve the same corpus.

If you invest Rs 1 lakh per month at the rate of 10 per cent for 15 years, then you can accumulate a corpus of Rs 4 crore. Here you need to decide whether Rs 4 crore is enough for your financial goals post retirement. If not, then you either need to take higher risk or invest more amount. So far as where to invest is concerned, if you are a moderate risk taker, then you can invest 25 per cent in large-cap fund, 20 per cent in mid-cap fund, 5 per cent in small-cap fund, 25 per cent in corporate bond fund, 15 per cent in short duration fund and 10 per cent in dynamic bond fund.