Money Matters

  • Ifthikar Bashir
  • Publish Date: Mar 5 2018 2:29AM
  • |
  • Updated Date: Mar 5 2018 2:29AM
Money Matters

I work with a private sector company. Please advise me on inflation-linked pension plans and their pros & cons?    

Ashfaq Bhat via email 


Pension-insurance products are not a wise choice for investment purpose. We would advise you to keep insurance and investment needs separate. Products with insurance and investment elements in them mostly fail on both counts: they offer very little insurance protection and meager investment returns. If you are looking for an investment product to build a corpus for your retirement, then you can choose pure investment solutions like mutual funds. It is advisable to buy a term insurance plan to cover your life and invest in equity mutual fund schemes to meet long-term financial goals like retirement. You can consider investing the money in a staggered manner by investing via monthly SIP in one or two diversified equity schemes to create a corpus which allows you to retire comfortably.


I am a central Govt. employee and  am planning to start investing in mutual funds. Is it fine to invest in funds of a single fund house? Also, should I go for direct plans or through an Advisor?

Mushtaq Ali, Soura Srinagar.


From a diversification perspective, it is better to spread your investments across funds of more than one fund house. Several funds of a fund house will tend to have the same fund management and research teams and if their bets go wrong, it may potentially impact the performance of all their funds. Besides, there could be other factors such as the exit of a key fund manager which may impact several funds of that fund house. Therefore, it is always better to diversify your portfolio across fund houses too. Nowadays, you have plenty of good funds to choose from across different fund houses in almost every fund category.

Coming to your query about direct vs regular plans. The difference in their expenses can be as much as 1% per year. But having said that, they are more suitable for someone who is well-versed with the mechanics of investing and is able to manage his investments independently. Given that you are a first time investor, it may not be a bad idea to invest in the regular plans through your advisor. The extra cost that you pay might be well worth the hand-holding and service you get.


 I am a businessman and have some money lying idle in my account for a specific time period.What are the best investment options for 3-6 months with maximum returns? If invested in equity, will the profits be taxable? 

Ali Mohammad, Sopore.                                                                                                                           


For short time investment, spanning between 3 to 6 months, you can either park your money in liquid mutual funds or ultra short term debt mutual funds. Liquid mutual funds usually invest in government securities and certificate of deposits of up to 3 months duration. You can easily enter and exit at any point of time, usually without an exit load. Please note that sometimes the redemption may take around 2 days. These funds have given annual returns of around 4-7% post tax deductions. 

Ultra-short term funds invest in slightly longer term debt instruments with maturity of more than 91 days and less than 1.5 years. They may also levy an exit load for investors who redeem units within a specified period. I would strongly advise you against investing in equity, given your short time horizon. Equity investments are suitable for a time horizon of at least 3-5 years.


If a MF is performing worse than its peers but better than its benchmark, should I get out of it?                                                                                        

Tanveer Ahmad via email.


This is debatable and pondering over the situation is advised before taking a decision. You should give that fund some time, depending on the track record of the fund manager. If the fund has a track record of 15 years of beating its peers and benchmark, you should give 3-4 years time. The reason is that the fund and the fund manager have seen the ups and lows of the market and it is likely that the fund will bounce back even if it isn’t performing well at the moment. However, if the fund has been only 3-4 years old then it is not advisable to stay put for long with such a fund as the fund manager wouldn’t have witnessed many such market cycle.


I would like to know what are the options for parking my emergency funds? 

Mudasir via email              


The severity and nature of the emergency would need to be considered here. There should be 3 to 4 layers of emergency fund. For example, if your young kids or old parents are living with you, you should have some money in your locker, which won’t fetch any return but give you great comfort. Then, in the next layer, you should have a small amount always in your savings bank account which can be in the way of sweep-in facility and hence accessible through ATM. If you have health & life insurance this need can come down substantially. Then the next layer of emergency fund can be in ultra-short term or short term debt funds. These are available for withdrawal at a short term notice. They can also be a long term money lying there but it should be accessible anytime and without any uncertainty of declining value.