Keep a watch on investments

I am running SIPs of Rs 2,000 each in HDFC Top 200, Kotak 30 and Reliance Growth. These are meant for my grandchildren. The time horizon for this investment is 15 years. Should I continue in these schemes?

-Sat Pal Aggarwal

Your scheme selection is good and you may continue in these. However, it is important to regularly track their performance, as the schemes might not remain good forever. If their performance shows signs of deterioration, look for other funds.

The government has proposed to do away with the distinction between short-term and long-term capital gains in the proposed direct tax code. What would be the impact of this change on a SIP calculation for long-term investors?

-Satvik Kumar

Taxing long-term capital gains will mean that when you prepare a SIP for your long-term goals, you will have to take an increased sum into consideration. For example, if the money required is Rs 1 lakh and the tax rate applicable is 20 per cent, then you will need to accumulate Rs 1.25 lakh. Accordingly, the regular contribution amount will also increase.

I want to invest some amount in an aggressive mid-cap/small-cap fund. Please suggest some funds.

-Himmat Singh

Some mid- and small-cap focused funds that have performed well over the past years are Birla Sun Life Mid Cap Plan A, IDFC Premier Equity Plan A, Sundaram BNP Paribas S.M.I.L.E. and Sundaram BNP Paribas Select Midcap. These funds keep a major part of their portfolio in mid-/small-cap stocks.

Usually, the Net Asset Value (NAV) of the dividend option of a fund is found to be lower than that of the growth option because of the periodic dividend payout. This, however, is not true in case of DSP BlackRock Equity Fund. Why?

-S H Godbole

The dividend plan under DSPBR Equity Fund has been in existence since April 1997, while the growth plan under the fund was launched only recently, in June 2007, when the NAV under the dividend plan was already close to Rs 43, while the NAV of the growth plan was started afresh from Rs 10.

I have Rs 1 lakh in fixed maturity plans that mature next fortnight. Suggest some debt investments with a time horizon of two to three years. The return from these funds should be adequate to beat inflation.

-Pramod P Bhave

Given the expected rise in interest rates, volatility in income funds is going to abound (bond prices will fall when interest rates rise). We suggest you invest 90 per cent of the money in high-yielding bank fixed deposits, where the principal will be secure. To get positive inflation-adjusted returns, invest the remaining 10 per cent in large-cap diversified equity funds. Birla Sun Life Frontline Equity, HDFC Top 200 and DSPBR Equity are good picks.

Are the dividends paid under mutual funds deducted from the profits these funds make when selling units in the markets?

-V N Kale

The NAV, which is the price of units for investors, reflects the value of stocks (and some incidental cash) that the investor will hold by way of one unit. Mutual funds do not make a profit when they sell additional units in the markets. Whatever is distributed by way of dividends is a part of the scheme's assets and the NAV falls to the extent of dividend distributed. To pay dividends, funds use the proceeds from new investments or from selling the securities they hold in their portfolio.