MIPs give returns, regular pay

I am 61, retired and have paid all loans. I need Rs 40,000 as monthly expenses. I never invested in mutual funds but want to do so now. I have saved Rs 8 lakh. Please suggest some good funds I can invest in. My risk appetite is very low and I want regular returns.

- Suvidha

Your target seems unachievable. Even if you invest your entire savings in equity diversified funds (risky) that provide high returns against debt instruments, you will fall short of the target. Conservatively assuming equity yields 10-12 per cent yearly, you get only Rs 6700-8000 a month.

You may invest in monthly income plans (MIPs) - Reliance MIP, DBS Chola MIP - that give income by investing in debt schemes (80 per cent) and rest in equity. They are risky and the returns can be irregular. But, they can return more than debt. In the last 1-, 3-and 5-year, the category average gave 12.19, 8.43, and 9.18 per cent, respectively (as on April 30). Alternatively, you may invest in Senior Citizen Savings Scheme (SCSS) that give an assured annual return of 9 per cent.

Also, you could split your corpus between SCSS and MIP in a ratio of 50:50, or 60:40.

Please suggest some top performing ELSS. Also, investing in ELSS is more profitable than NSC?

- Vivek Singh

Both ELSS and NSC give tax benefit under Section 80C of the Income Tax Act. If you are looking for safety and a guaranteed return, NSC scores higher than ELSS. It gives a fixed annual return of 8 per cent. But, in terms of long-term returns, ELSS definitely scores over NSC.

ELSS is also a superior investment product in terms of holding period and tax benefits. The mandatory investment period for ELSS is just 3 years, as against 6 years in case of NSC.
 

THE ELSS CATEGORY
Schemes	3-yr return (%)
Canara Robeco Equity Tax Saver	21.63
Fidelity Tax Advantage	14.79
Franklin India Taxshield	14.21
HDFC Taxsaver	13.17
Magnum Taxgain	9.15
Sundaram BNP Paribas Taxsaver	15.58
Category Average	10.38
As on April 30, 2010

When you sell the ELSS units after 3 years, the long-term capital gains tax is zero. But the returns from NSC are added to your income and taxed according to the tax slab you fall under.

I invested in HDFC Tax Saver, HDFC Long Term Advantage and ICICI Prudential Tax Gain. Now I am thinking of investing in Canara Robeco Tax Gain, HDFC Equity and DSPBR Equity. Is it wise?

- Bhaskar Bora

Yes, all three funds are good performers in their respective category.
 

Scheme	3-year (%)
	Category Avg	Returns
Canara Robeco Tax	10.38	-
DSPBR Equity	10.38	18.43
HDFC Equity	10.38	17.39
As on April 30, 2010

Value Research