Money Matters

  • Ifthikar Bashir
  • Publish Date: Dec 15 2017 9:52PM
  • |
  • Updated Date: Dec 15 2017 9:52PM
Money Matters

I am a first time investor in mutual funds. Are these investments safe?

 – Khalid Mehraj, Lasjan


Mutual funds are an ideal tool for wealth creation. They offer many advantages – diversification, professional management, liquidity, and you get to profit from the growth potential of businesses and the economy. Here are three simple rules that first-time investors must follow:

Invest in equity funds for a period of 3-5 years.

Invest through Systematic Investment Plans. An SIP is an disciplined strategy allowing investors to invest smaller & regular amounts periodically in the mutual funds, as such offering the benefit of averaging & compounding.

Invest the amount in piecemeals and as top-ups on your SIP.


If you don’t stick to these rules, you may make the mistake of buying high and selling low, and then you may never enter the market again.


Does the date of an SIP matter?

– Mudasir Masood, Natipora Srinagar


No, it doesn’t matter. The major function of SIPs is that they enforce discipline. The difference in performance between SIPs done on two different dates is entirely a matter of chance. Your SIP dates are immaterial to the final returns you get from your SIPs.



I need to save tax. Should I invest in equity-linked savings schemes, ELSS, or PPF?

– Sabia Shah, HMT Srinagar


Equity tends to be the best-performing asset class over the long term. Therefore, ELSS are far superior to PPF for wealth creation. Equity tends to be risky in the short term but for an investment horizon of five years or more, it is extremely rewarding.


The charm of PPF lies in its guaranteed returns. But PPF returns look disappointing when seen in relation to inflation. My suggestion would be to invest in two tax-saving funds to achieve diversification, which is desirable for a category like ELSS, where investments are locked in for three years. ELSS trumps debt-based tax saving avenues such as PPF in terms of returns over the long term.



Should I stop investing in a fund that underperforms its benchmark for more than a year?

– Anjum Rehman, Sopore


It depends on how experienced the fund manager is. Say, if a fund manager with 20 years of experience who has been generally right with his decisions underperforms, you should wait longer before exiting the fund. But if a less experienced fund manager underperforms consistently or does well in one cycle and struggles in another, it is better to stop or switch your investments. Bottom line: allow an experienced fund manager more time before you exit a fund due to underperformance.



How much tax does one have to pay on profits earned from equity mutual funds?

– Abdul Rehman, Soura


Profit from mutual fund investments are known as capital gains – short-term capital gain or long-term capital gain, depending upon the “period of holding “. The tax applicable is known as the capital gains tax.

Mutual fund schemes that invest at least 65% of their fund corpus in equity and equity-related instruments are known as equity funds. If you sell your equity fund investments before 12 months, you will have to pay a short-term capital gains tax at the rate of 15% and if you sell or redeem your investments in equity mutual funds after 12 months, your investments qualify for long-term capital gains tax, which is zero at the moment. So, hold on to your investments and enjoy tax-free returns in the long run.