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Every investor needs tohave in place an invest-ment strategy that would

guide his/her investment deci-sions to reach their individualgoals based on their risk tak-ing abilities. Every investmentstrategy encompasses an assetallocation strategy, that is ofall the available assets, inwhich an investor should puthis/her money in. The assetclasses could be equity, debt,gold, commodities, real estate,art etc. For each of the assetsclasses too there would bestrategies to invest inand given the nature ofthe asset class, eachwould be very differentfrom each other.

In case of equi-ty investments,the ideal invest-ment strategyfor an in-vestorshould be amix oflarge capfunds, mid-cap funds,small capfunds and mul-ti-cap funds. In addi-tion there could beschemes that fol-low styles like val-ue and growth, fi-nancial advisorsand planners say.And in case therisk profile ofthe investor per-mits, the in-vestor could

also invest in sectoral funds,thematic funds, balancedfunds etc. They say that de-pending on the risk takingability of the investor,there should be an opti-mum balance between var-ious types of funds.

Under Sebi’s new fundcategorisation rules, largecap funds are those mutualfund schemes which investpredominantly in compa-nies that are ranked amongthe top 100 by market capi-talisation. Likewise a mid-cap fund is a schemes

that invests predom-inantly in compa-nies which are

ranked between101st and 250th bymarket capitalisa-

tion while

smallcap fundsare thosewhich investin companiesthat ranked outsideof the companiesranked 250th byfull market capi-talisation.

According toSebi, a multi-capfund is an openended equityscheme that in-vests across

large cap,mid cap

andsmall cap stocks. Such fundsshould have at least 65% of itscorpus invested in equity andequity-related instruments.

The regulator also defines avalue fund as the one that fol-lows a value investment strate-gy, meaning it should invest incompanies with hidden valuewhich could be the winners oftomorrow. These funds also

should have at least65% of its corpus

invested in eq-uity and equi-

ty-relatedinstru-ments. Agrowthstyle is de-fined as onethat targetscompanieswithgrowthrates abovethe indus-try-average.

Accord-ing to fundindustryprofession-als, the idealinvestmentstrategyalso calls foran investorto select thescheme andalso the op-tion whichcould be thebest for

his/her fundrequirement in

future. Such optionscould be either to invest a

lump sum amount in a fund orto take the systematic invest-ment route.

According to Value Re-search, the highest compound-ed annual return in a large capfund over a five-year SIP hasbeen 21.2% while the lowesthas been just about 10%. Incomparison, the average annu-al return over a five-year peri-od through a lump sum invest-

ment has been 15.4%. In case ofmid-cap funds, the returnrange has been between 29.7%and 12.5% while the averageannual return over a five-yearperiod through a lump sum in-vestment has been 25.6%. Incase of small cap funds, the re-turn range has been between37% and 26.3%. In comparison,the average annual return overa five-year period through alump sum investment has been32.2%. And in case of multi-capfunds, the return range hasbeen between 25.2% and 9%,while the average annual re-turn over a five-year periodthrough a lump sum invest-ment has been 19.5%.

This article has beenexclusively created for

UTI SWATANTRA

TIMES NEWS NETWORK

Ask any financialadvisor orplanner about tax

saving financialproducts, the chancesare very high that he/shewill recommend anequity linked savingsscheme (ELSS) ashis/her top choice forinvestors with someamount of risk-takingability. According tofinancial advisors andplanners, there areseveral reasons for aninvestor to opt for ELSSover other similar taxsaving financialproducts.

For one, ELSS comewith a three-year lock-inclause, meaning aninvestor investing in anELSS has to stay investedin the fund for at leastthree years to claim thefull tax benefits.However, in comparison,PPFs, another tax savinginstrument that could becompared with ELSS,has a lock-in of sevenyears after which anylimited withdrawal isallowed. Pre-maturewithdrawal is notallowed if one invests intax saving bank fixeddeposits. A similarclause applies to lifeinsurance policiesalthough one could availof some loans againstpolicies. Investments inNational PensionScheme (NPS) are alsolocked-in till maturity,that is only after theinvestor turns 58 years.Going by the low lock-inperiod, financial advisoror planner select ELSS

as the preferredinvestment product,provided the investorhas the risk-takingability to invest in suchfunds.

The second reason forselecting ELSS overother competingproducts is the stronglikelihood of superiorreturn over the long run.Given that ELSSpredominantly invest instocks, the returns in themedium to long term,that is over five-yearperiod, is in doubledigits. In comparison,although NPS returnsfor some of the funds arein double digits, butgiven the conservativeinvestment style, thereturns are in low singledigits and less than theaverage returns byELSS. Also returns frombank FDs are fixed andat current rates, they arein mid single-digits.

Financial advisorsand planners also saythat often it is seen thatinvestors invest in ELSSto save taxes but they

withdraw the amountafter the three-year lock-in expires. They say thatthis is not a goodstrategy. Investorsshould continue toremain invested in ELSSfor the long run to reapmaximum benefit.According to them evena better approach is tostart a systematicinvestment plan (SIP) inan ELSS and continue toenjoy tax benefits yearafter year withoutburdening one’s walletas the end of thefinancial yearapproaches.

Industry data showthat compared to a 15.4%annual return from largecap equity funds over thelast five years, ELSS havereturned 19.7% whilemid-cap funds havereturned 25.6%. Here,however, the main pointto remember is thatwhile investments inELSS come with taxsops, the same does nothold good in case oflarge cap and mid-capfunds.

NEXT EDITIONIn our next edition, we will deal in detail about Sebi’s initiatives tore-categorise mutual fund schemes what it means for investors.

DEMYSTIFIER

To help mutual fund investors select schemes easily than earlier, Sebihas divided mutual fund schemes in five broad groups, which arefurther divided into a total of 36 categories. According to Sebi, MFschemes should be “clearly distinct in terms of asset allocation,investment strategy etc.” The process is aimed at ensuring that anMF investor “is able to evaluate the different options available, before

taking an informed decision to invest in ascheme.” The five broad categories areequity schemes, debt schemes, hybrid

schemes, solution-oriented schemesand other schemes. Within these groups,

there are sub-categories, divided accordingto the risk profile, market cap etc. For

example, debt funds have been dividedaccording to duration and accrual while

equity funds have been divided bymarket capitalisation, tax

treatment, sectoralexposure etc.

HOW DOES SEBI’S MF RE-CATEGORISATION SCHEMES WORK?

Zero in on your optimum equityinvestment strategy wisely

You could have a mix of schemes that invest according to market cap and also according to styles

This article has been exclusively created for UTI SWATANTRA

Why advisors prefer ELSSas a tax saving product?

I AM A 40-YEAR OLD PRIVATE SECTOREMPLOYEE, EARNING ABOUT RS 90,000PER MONTH (PM). MY INVESTMENTSARE RS 1.4 LAKH PER ANNUM (PA) ANDMY HUSBAND EARNS CLOSE TO RS 2LAKH PA. WE HAVE TWO CHILDREN. WEHAVE A HOUSE. I HAVE FOUR LIFEINSURANCE POLICIES WITH A TOTALPREMIUM OF RS 70,000 PA. I HAVE A RS2,500 MONTHLY SIP IN A PHARMAFUND. I ALSO HAVE FDS OF RS 10 LAKH.I AM VERY RISK AVERSE. WE HAVEAGED PARENTS WHO STAY WITH USAND WE HAVE A MEDICLAIM COVER OFRS 10 LAKH FOR THEM. MY MONTHLYEXPENSES ARE RS 65,000 PM,INCLUDING SCHOOL FEES. WEUSUALLY PLAN FOR 2-3 LOCALHOLIDAYS OF RS 60,000 EACH ANDPLAN A FOREIGN TRIP EVERY TWOYEARS, EACH COSTING ABOUT RS 8LAKH. I WANT TO HAVE A HEALTHYRETIREMENT CORPUS FORMAINTAINING A DECENT LIFESTYLE TOREMAIN INDEPENDENT, TAKE CARE OFKIDS’ STUDIES AND EXPENSES FORTHEIR WEDDING. HOW SHOULD ISTRUCTURE MY INVESTMENTS AS IPLAN TO WORK FOR NEXT 9-10 YEARS?

Mamta ChakravartiMukesh Sharma replies

Looking at the current profile, earningsand investments below are some of thechanges to be made to get the desired

result: ●● You have four insurance policies and thetotal outflow is Rs 70,000 per year. Youshould immediate stop all your existingpolicies except the last one which gives youa whole life cover.●● Stop the SIP in the pharma fund as it is asector fund and our advice is you shouldstart fresh SIPs totalling Rs 15,000 per monthin some good, diversified multi-cap funds tomeet your children’s education.●● Plan to buy term insurance of Rs 50 lakhto Rs 1 crore and also include yourself, yourkids and your husband in the existingmediclaim policy.●● Start a Rs 5,000 SIP in aggressive mid-caporiented fund to meet your foreign holidayrequirements and another Rs 5,000 SIP fordomestic holidays.●● To build your retirement corpus, breakyour Rs 10 lakh FD in two parts as FD ratesare going down. Put Rs 5 lakh each goodbalance funds. Also you need to increaseyour SIP amount every year as your salaryincrease.

Mukesh Sharma is an Indore-basedfinancial consultant

This article has been exclusivelycreated for UTI SWATANTRA

INVESTOR QUERY

STEPS TO DOWNLOAD ANDSCAN A QR CODE● Download QR code app on your phone● Run app and scan the QR code● Your smartphone will read thecode & navigate to thedestination

Scan this QR Code toknow more about thebalancing act.

EQUITYMF

RETURNS

LARGE CAP 21.2% 10% 15.4%MID-CAP 29.7% 12.5% 25.6%SMALL CAP 37% 26.3% 32.2%MULTI-CAP 25.2% 9% 19.5%

*Over five years l Source: Value Research;

FUND TYPE HIGHEST LOWEST CATEGORY SIP RETURN* SIP RETURN* AVERAGE RETURN

(LUMP SUMINVESTMENT)*

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THE TIMES OF INDIA, MUMBAI THURSDAY, MAY 3, 2018 25

CCI NG 3.7 Product: TOIMumbaiBS PubDate: 03-05-2018 Zone: MumbaiCity Edition: 1 Page: TOIMSPO2 User: rohit.bundelkhandi Time: 05-02-2018 22:15 Color: CMYK