Investing online from abroad

PORTFOLIO MAKEOVER

Your bank should have a tie-up with the mutual fund house for direct investment.

Can you please tell me how I can carry out online investments in mutual funds while I am abroad for a few months? I have an account (internet banking) with ICICI Bank.

"" Arun Rastogi

Now a days, mutual funds offer online investing facilities through their websites. Furthermore, to your advantage, there would be no entry load deduction if you do not specify a broker code while applying online i.e. invest directly.

But there are a few things you need to be aware of. Each mutual fund company has tie-ups with only a few banks for net banking and transferring of funds while purchasing units. Investing through a debit or credit card is not permissible.

Hence you need to check if your bank is on the list of that particular fund company's website. Furthermore, since PAN is a mandatory requirement for investing, you will be required to send an attested copy of the PAN card to the fund house for verification. This will apply if you are investing in a fresh folio.

You can also purchase units if you have an online account with some brokers like ICICI Direct, Sharekhan or India Infoline which offer online mutual fund services. But there would be an entry load deduction if you buy units through these websites.

While going through the details of Reliance Regular Savings Equity Fund on its website, I noticed that it involves an Active Investment. Can you please clarify what is meant by 'Active Investment'? How is this style different from other styles? Would also like to know if mutual funds are allowed to do intra-day trading or not?

I had taken a personal loan of Rs. 7.5 lakh to clear some old family debts. I intend to set up a SWP in one or two mutual funds for the next four years which would supplement me to pay the loan EMIs. Can you suggest two equity mutual fund schemes which may be ideal for this purpose?

- Amit Bhattacharjee

When it comes to investing, there are two styles to it - Active and Passive. Active investing is a strategy in which the fund manager is highly involved in buying and selling of stocks (in case of mutual fund). Here the aim of the manager is to beat the returns generated by the corresponding benchmark or an index.

On the other hand, in the passive style of investment, stocks are bought with a long term perspective. Here the portfolio is not as frequently churned as it is in active investing and the manager does not resort to profit booking based on short term price fluctuations. Indexing is an example of passive form of investing. An index fund invests in same stocks, in the same proportion, as in an index like SENSEX or NIFTY.

Coming to your second query, we would not recommend you to initiate a SWP in equity mutual funds to help you pay your EMIs. If you invest one time in equity funds and then opt for a SWP, you would be assuming high market risk. If your investment value goes down over time and you withdraw funds (via SWP), you are in a way booking losses.

So you can approach this in two ways. Firstly, as the interest that you will be paying on the loan would be quite high, it would be a wise decision to clear a part of the loan and save on interest. Secondly, if you wish to go the SWP way, then opt for a pure debt fund like Kotak Flexi Debt or ICICI Prudential Long Term and then opt for a SWP as they are low risk funds.

I would like to know which are the best debt mutual funds that give comparable or better results than bank fixed deposits (FDs).

"" Lalitha Sudha

Let us first briefly differentiate between debt funds and FDs. Debt funds do offer superior returns than FDs at times but they have associated interest rate risk. If you hold a debt fund for more than a year you can avail of the indexation benefit (tax on gain from debt fund after a year - 10 per cent without indexation benefit or 20 per cent with it, whichever is less) and reduce your tax liability further.

Though fixed deposits provide you a guaranteed return over a fixed term and have no associated interest rate risk, the interest earned is to be added to income. This reduces their yield further.

If you are a long term investor and wish to invest in debt funds, opt for some five or four star rated debt funds. Kotak Flexi Debt, ICICI Prudential Long Term or Birla Sun Life Income can be some good options.

You should also consider Arbitrage Funds for investing which have minimal associated market risk and are considered at par with equity funds for tax treatment. These funds have managed to generate returns in line with those generated by debt funds.

Debt FundsReturn (2007)Kotak Flexi Debt 8.54ICICI Prudential Long Term8.49Birla Sun Life Income13.03Arbitrage FundsJM Arbitrage 8.95SBI Arbitrage Opportunities9.23UTI SPrEAD8.84

My net monthly salary is Rs. 28,000. I plan to invest Rs. 8,000 every month through SIPs (Rs. 5,000 in ELSS and Rs. 1,000 each in three equity funds). My target is to build a corpus of Rs. 1 crore after 20 years. Please suggest in regards to the ELSS fund and three equity funds that I should invest in to achieve my goal.

"" Ved Prakash Mishra

Congratulations. You are right on track! Assuming that a well rated equity fund would generate 20 per cent annual return in the coming years, your monthly investment of Rs 8,000 would grow to Rs 1.98 Crore in 20 years. However, fund selection would be the key here. Choose a fund which has proven its worth and has a good performance history.

For tax saving funds, choose from well rated funds like Magnum Tax Gain, Birla Sun Life Tax Relief or Sundaram Tax Saver. Amongst diversified equity funds select some large cap oriented funds like Reliance Vision, Sundaram Select Focus or Birla Frontline Equity.

Avoid investing in too many funds. You can choose two ELSS funds (Rs 2,500 each) and two equity diversified funds (Rs 1,500 each) to divide your total investment of Rs 8000 per month.

I have invested Rs 1000 through SIP in Reliance Growth, HDFC Equity, Reliance Diversified Power, Tata infrastructure. Good choice or not?

"" Neeraj Agarwal

Your portfolio is high on risk due to presence of two sector specific funds (Reliance Diversified Power and TATA Infrastructure). You can include one balanced fund like Magnum Balanced or DSP ML Balanced (instead of any one sectoral fund) to reduce the risk element.

I want to invest in mutual fund for long term with less risk. Please advice.

"" Yogendra

Create a balanced portfolio by investing in some debt funds (for stability) and balanced funds. Balanced funds would help you generate decent returns in the long run. For debt funds consider Kotak Flexi Debt, ICICI Pru Long Term. For balanced funds, HDFC Prudence or Magnum Balanced can be good choices for you.

Which is the best mutual fund to invest for the next one year?

"" Hiral Vasdeva

As it is tough to predict future market movements, it is advisable that you invest systematically in well- performing funds.