Mutual fund units cannot be transferred till the death of the unit holder

I am 31 years old, investing Rs10,500 via SIPs since last 6-7 months in—Large-cap: Birla Sun Life Frontline Equity Fund (G) (Rs4,000); Multi-cap: ICICI Prudential Value Discovery Fund (G) (Rs5,000); and Small-cap: Reliance Small Cap G Fund (Rs1,500). I want to invest for minimum 5-7 years. I want to know if my portfolio is good enough? Some people are suggesting that I add a mid-cap fund for better returns. My aim is to create wealth but at the same time, I don’t want to take too many risks. In the long run, should I top up these existing funds as and when possible?—Nikhil Malhotra

There are a few things you need to consider before you decide on your fund selection. One, you need to have a goal (in the form of a target amount) for your investments. Next, given that you have a time-frame in mind, you need to check what the possibilities are of you reaching your goal with commensurate risk. Will having an all equity portfolio help you do this without much risk, is a question you need to ask yourself. Past data suggests that an all equity portfolio has a measurable chance of delivering negative returns even over 5-year timeframes. This is so even if you go with SIPs. Given this risk, it is better that you do an asset allocation for your portfolio, with a mix of equity and debt funds. How much equity you should have will depend on your risk profile. However, given your age and timeframe, a 70:30 equity debt allocation will do a good job of hedging your portfolio from risks. If you think this allocation suits you, then you would need some equity and debt funds. A balanced fund will give you some debt but given that the debt allocation there is low, even a 40% allocation to a balanced fund will give you a 10% allocation to debt. Hence, given your present amount, this may not be an ideal allocation.

Among the funds you hold, you can consider stopping investments in Reliance Small Cap and just hold the fund. Since you have stated that you do not want undue risks, you can do away with the risky small-cap category. Instead allocate it to a debt fund like UTI Short Term Income fund. Invest Rs3,000 in this fund and cut back on the ICICI Pru Value Disocvery by Rs1,500 to ensure you have sufficient debt allocation. Your Aditya Birla Frontline Equity fund is a good choice. You can continue it. The two equity funds and one debt fund should provide you a good mix. In future, if you plan to increase investments, you can consider adding a balanced fund.

Kindly assist me with the information that I would need to get started with investing in mutual funds. My friend says that it is better to buy directly from the fund website rather than going through an agent. I would save 1% of the brokerage. What are some good funds I can invest in, also keeping into account tax benefits, if any? I have around Rs20,000 to invest in a month. —Joseph Falcao

For successful mutual fund investing, an investor needs to be able to do three things. One, be familiar with financial arithmetic and be able to do some basic planning. This is to figure out how much to invest and how long to invest for to reach defined financial goals in life. Second, the investor would need to understand asset allocation principles and be able to put together a good portfolio. While this is not rocket science, especially given that there are tools such as Mint50 funds available, it still requires an understanding of portfolio design. Third, and as important as the first two, one would need to be able to maintain this investment portfolio both from a review and rebalancing perspective as well as from a behavioural perspective. If an investor can do these three things then they should unhesitatingly go to mutual fund websites and invest directly. 

However, as I read your question, I can see that you are quite a distance from being able to build and maintain your own portfolio. Given this, I would recommend that you go through an adviser. If you can find a registered investment adviser (RIA) who can take a fee and guide you with direct funds, please go with such a person. Else, please seek an adviser who’ll use regular plans for your portfolio.

If a person is holding a few mutual funds in his HDFC ISA account for, say, 30 years, and is too old to track them, can he transfer them to his grown up son without selling them so that the son can benefit from the long-term compounding and also continue to hold them even longer? If not, upon death of father, can it be transferred and can the son still hold the units for long term?—Rajendra

Mutual fund units cannot be transferred to another person other than in the situation where the unit holder is no more. If the son is set up as the nominee in the folios of the father, then upon the death of the unit holder, the son can stake claim to the units and get them transferred to his name. However, this does not happen automatically and would require the son to be aware of these folios. So, it would be best if the father either creates a Will or lets the son know about these investments pro-actively. When the time comes, the son would need to approach the mutual fund companies where the folios are and produce a death certificate apart from regular KYC formalities and documents identifying himself (like PAN or Aadhaar card). When these are presented, the units will be transferred to a new folio in the son’s name. There would be no need to sell and re-invest these holdings in this situation, and the son can continue to benefit as a holder of the folio. 

Srikanth Meenakshi is co-founder and chief operating officer,

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First Published: Wed, Dec 06 2017. 04 50 PM IST

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