Readers' Corner: Mutual Fund

I have been investing in equity funds through a systematic investment plan (SIP) for last three years. Now that the Nifty is close to 10,000-mark and I have made good returns, should I book profit or continue investing?

Investments in equity funds should be looked at from a long-term view. Markets making new peaks also not mean you should discontinue investments. Your investments through an SIP can be continued without the need to time the markets, as this works on a rupee cost averaging concept. With this, you will get less units allocated as the markets go up and more allocated as the markets fall.

An SIP also helps an individual be a disciplined investor and build a bigger corpus, as small investments get compounded over time. This makes an SIP an all-market cycle investment option. You can align your SIPs with a specific goal and withdraw money when you have achieved.

I have some investment in a dynamic bond fund that I don’t need for another two, three years. Should I continue or look at another debt fund? 

You need to look at the investment decision based on your risk appetite, investment horizon and from a taxation perspective.

You are invested in a debt, and from a taxation point of view, get the benefit of long-term capital gains under this category if you have remained invested for three years or more from the date of allotment of units. You also have to consider the exit load charged on your investments if you wish to switch funds.

From an investment tenure of three years and more in a debt fund category (low to medium risk), one could opt for income funds, which invest across all types of debt and money market instruments. These funds are focused on providing stable returns, while benefiting from capital gains through duration exposure. 

I am 21-year-old, and have just started earning a monthly salary of Rs 30,000. What sort of mutual funds should I look to invest in? I am not looking for a particular corpus, as of now.

It is good to know that you would like to start investing early in life. Starting early is one of the most important factor in financial planning and it has many benefits. As you are starting to invest in your early age and can look at taking higher risk, you can consider investing in equity mutual funds with a long-term view. You can decide on an investment amount based on your monthly expenses and goals and start an SIP. This will enable you to invest a fixed sum on regular intervals helping you to build a corpus over the long run.  

Also, investors who start investing early tend to build a larger corpus over time. This is based on the power of compounding, which simply means the returns you generate on your investment also earn returns over the tenure of investment and the longer the tenure of your investment the more your returns compound/multiply. 

I run a business. My income varies every month. How can someone like me enrol for an SIP. Is there any variation of SIP I can use?

Starting an SIP does not require a huge amount of monthly commitment from your end. You can start an SIP for as low as Rs 500 a month. You can determine your average income and expenses per month and based on the same the investment amount you would be comfortable saving every month. Additionally, you can also use SIP variations whenever you wish to increase or reduce your SIP amount during the investment tenure. You can also modify the SIP tenure in the future, based on requirement.

The writer is managing director and CEO, SBI Mutual Fund. 

The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in.