Money Matters

  • Ifthikar Bashir
  • Publish Date: Jan 1 2018 11:49AM
  • |
  • Updated Date: Jan 1 2018 11:49AM
Money Matters

I am a private sector employee and not entitled to a pension. I intend to go for a unit-linked pension plan for 20 years. Is that a good option?

– Arif Wasim, Batmaloo Srinagar


Unit-linked pension plans are pension schemes with inbuilt insurance. Don’t buy insurance products for investment. It’s always better to buy a pure term plan to get an adequate insurance cover. ULPPs give a low return and are expensive too. Since you don’t have a regular pension from your employer, it makes sense to divide your investment amount between assured return schemes for capital security and, depending upon your risk appetite and equity exposure, some good diversified equity funds.


I have been a regular investor in equity market for the last five years. What should be the frequency of reviewing my investments?

– Gul Mohammad, Sopore


You should review your investments every year. After the first year, reviewing your portfolio every quarter for big rebalancing opportunities is also sensible. After a year, in fact, rebalancing your equity investments could prove tax-efficient. But keep in mind that “a watched pot never boils”.


How can someone with a fluctuating income invest through a Systematic Investment Plan?

– Showkat Bashir, Bijbehara


It depends on how fluctuating your income is. Say, one month you may make Rs one lakh and in the next three months you don’t make anything. In such a case, you should invest conservatively in an ultra-short term bond fund or a liquid fund, and give a standing instruction to move the money over a period of time, say three to six months, into equity funds.

If your fluctuating income is consistent around a base, make lump sum investments every month. Investing performance is entirely a result of your discipline. The main purpose of SIPs is to bring discipline to investing. If you are disciplined, fluctuations in your investments matter little.


I have been investing in equity mutual funds for a long time and am quite happy with the returns. I am now interested in buying a thematic or a sectoral fund. Which one would you suggest?

– Virender Singh, Rangreth


Sectoral funds are focused on specific sectors – banking, pharma, FMCG, IT. Thematic funds tend to capitalise on an opportunity. For instance, Sundaram Rural India Fund is a thematic fund focussing on the rural India theme. Please don’t get excited about thematic or sectoral funds. When you get them right, they can generate extraordinary returns, but mostly they disappoint.

My suggestion would be to stay diversified at all times, even at the cost of missing out on some opportunities. The idea of mutual fund investing is that you don’t want to speculate. Most investors can do without thematic or sectoral funds. However, if you are confident about a theme or a sector and feel it is not reasonably represented in your diversified fund, consider investing a small part of your corpus in a relevant thematic or sectoral fund.


Advertisements on TV about Exchange Traded Funds have become frequent lately. What is an ETF and how good is it as an investment option?

– Mohammad Yousuf, Natipora, Srinagar


Passive investing funds or index funds track an index. A specific form of the index fund is an exchange traded fund. An ETF is a fund that is listed on a stock exchange and can be traded like stocks. Not all index funds are listed though. ETFs are available for not just Indian market indices, but there are also gold ETFs and international market ETFs. Gold ETFs are far more efficient than physical gold and international ETFs help you diversify your portfolio.

A major reason passive investing has not gained momentum in India is because actively managed funds frequently beat passive funds in terms of returns. Buying and selling ETFs incurs brokerage and securities transaction tax. Given the low popularity of ETFs and their low trading volumes, it would be sensible to stay away from them. The market has better options to offer.