Each week I try and answer generic questions from readers. Here is this weeks edition. You can use the form below to ask your question. Kindly note that I cannot offer investment advice or product suggestions.
Satya: Hi Sir, I am planning to build mf portfolio on my wife's name. What is the best way to do. For example, i have balance fund mf in my pf, it is okay to add balance fund there as well. Or both pf should have unique fund category?
Pattu: How can I answer this if I do not know what is the intention behind this investment?! All I will say is, a single fund can be part of two portfolios or rather two goals. Tracking maybe tougher here though.
Neeraj Kukreja: Hello sir I have heard about reviewing your portfolio. What exactly reviewing means? What things or changes should we notice in a mutual fund scheme especially equity? How reviewing conclude that we continue investing (throughSIP), stop it or finally switch to other schemes? Thanks for your very informative articles
Pattu: Thank you. I have written about this at length. If you search for "review" using the search box to the top right, you will see:
Axay Shah: How to compare OR convert CAGR TO Absolute Return Ex: Suppose I invested 100 RS. for 5 years its grown to 200. What is CAGR and what is Absolute Return? ABS RET. IS 100% and CAGR IS suppose something but now I want to convert these if 5 years its. Return is 100 % Can I calculate immediately it's CAGR by using excel And. Can we make table which shows me immediately conversation?
Pattu: Good question! The absolute return in the example is:
(final-value - initial-value)/initial-value or (200-100)/100 = 100% as mentioned.
The CAGR or the compounded annualized growth rate is
(final-value/initial-value) ^(1/years) -1.
To understand this better, consider Rs. 100 which grows at the rate of 15% each year (just an example!) for five years.
The final value is: 100 x (1+15%) x (1+15%) x (1+15%) x (1+15%) x (1+15%) or
100 x (1+ 15%)^5 = 201.1
^5 represents to the power 5 (no of years).
I can turn this around and write:
(201.1/100)^(1/5)-1 = 15%. This is the CAGR.
For the above example,
(200/100)^(1/5)-1 = 14.87%.
The absolute return or the gain is of no practical use as it does take into account time. The CAGR needs the duration of the investment.
So for absolute return, I just need initial and final values. For CAGR, I need the duration, in addition to initial and final values.
So if I know the absolute return alone, I cannot calculate CAGR. The reverse is also true!
Learn more here:
Just to complete the rainbow here, the annualised returns for periodic investments is calculated using the IRR function (or the internal rate of return) and for random investments by the XIRR function.
Lakshay: Sir, first of all I am thankful to u for such an educative website. Que -- I hv invested in XYZ ultrashort-term debt fund whose Avg portfolio mat is 10 months, while it's ytm is 8 percent. Now recently there has been lot of fluctuations in debt fund prices, now if I hold it till say 1 year, shall this ultra-short fund give a return of 8 percent as it's Average portfolio maturity is 10 months. Kindly clarify my doubts. Thanks a lot sir.
Pattu: Thank you. The average portfolio maturity and yield to maturity in a closed-ended fund like Fixed maturity plans or interval funds make sense in terms of expected returns. In an open-ended fund, the fund manager will change his folio each month. So they represent only measures of risk and not indicative return.
Vipul: Sir Just 7 days prior to RBI policy, I invested in BIRLA SUNLIFE DYNAMIC BIND FUND. Now there is fall up to 2.5%..in a 3 weeks time. How shall I proceed. My investment is planned for long term. Now I am worried. ...whether to hold or sell.?
Pattu: Such ups and downs are natural in a dynamic bond fund. If you can hold for a few years, stay invested. It would be better to understand risk before investing.
Manjunath HK: Hello, I have invested in Birla SL Frontline equity - regular plan. The sip is no longer running. The total accumulation in this fund is about 57000 over 4 years. Can I move the lump sum to direct fund? Or should I STP to direct fund? If I have about a lakh, can I invest it lump sum or keep in a liquid fund and STP to frontline fund? The goal of this investment is my retirement which is about 25 years away from now. I'm open for any suggestion on switching to any other fund too...but direct plan only. -- Thanks, Manju
Pattu: Switch units that are older than a year old (and free of exit load, I assume) to direct gradually. There is no need of a STP. You can do it manually from time to time. Lump sum investing depends on your perception of risk. Read more: How to invest a lump sum in an equity mutual fund?
Anil Suman: Hi pattu sir, I am investing in mutual funds from last 2 years, and from your blogs and communication am able to get some knowledge on market now. Now I am interested in investing in shares/stocks, but i do not have enough money to invest in all the shares which i like and also i do not find any mutual fund which matches my desired stocks/portfolio list. So my stupid question is 🙂 By any chance is there a concept of customised mutual fund or do you foresee any concept coming like this in near future. Thanks.
Pattu: If you have 25 Lakhs to spare, you can subscribe to a portfolio management service. One does not need too much money to invest in shares. Just the willingnes to learn.
Jayaraman V: I have invested tax saving bonds (PFC) under cumulative option for 5 years through demat account with clear instruction for redemption after 5 years. However, PFC has extended it for another 5 years informing they have not received my filled in application for redemption. I have already escalated to the concerned team in PFC without any solution. Which is the next escalation matrix to take it further as PFC plays with investors money.
Pattu: You can complain to SEBI via their Scores website. However, there should be some proof of you having sent the same.
Rakesh: Hi Pattu, Looks like my query was missed. Hopefully, you can answer it next week. Inspired by your retirement planner calculator via FD/RD i have come up with the below plan. Invest 50L each in self and spouse account in Debt funds. Average returns 8% p.a. Withdraw 20k pm from each account for expenses and continue to invest the same. Basic mediclaim policy. Will this plan work? Thanks, Rakesh
Pattu: No it was not missed. I had already told you to get professional help if you want your numbers checked. I have no interest to do this.
Priyanko: Husband & Wife, both working in different organization, hence, covered under company provided (different) medical insurer. If wife gets into a medical event (hospital-stay), can both of them claim for cashless/reimbursement for the same event (suppose 1 is for applying for cashless and another for reimbursement or may be both for cashless)? Note: consider medical charge is over and above one’s overall coverage.
Pattu: Yes it is possible.
Kishor: I'm constructing a house and my parents are ready to give me a home loan for my house construction. I would like to know the process to get a home loan from my Family and what documents do I need in order to claim the home load tax benefits.
Pattu: You can have a clear document mentioning the loan details, amount given, period and interest rate (which should be reasonable). Ashal talks about it here:
Kiran: Hello Pattu Sir! I moved to a new company (Last September) after about 8 years in my previous one.My question is on EPF. The current company has its TRUST for the EPF while my previous company had with EPFO. Now, the confusion starts, the new company gave us a new UAN (Informing that it was given by EPFO due to technical issue in linking the old UAN). Also, there are issues with this organization in clearing / transferring the accumulated PF amounts to any other company which an employee joins (in future). Considering all this, I am planning not to transfer my old PF amount to this trust and instead to take out that money and put it into FD and forget it until retirement.How should I proceed? I would need your suggestions on this.
Pattu: First use a calculator and find out where you stand with respect to retirement. Decide the asset allocation and then where you invest. Would suggest that you not used FDs if retirement is many years away. A PPF if the lock will suit you would be better or debt mutual funds.
K S Viswanathan: I want to invest in Tax Saving Mutual Fund in Direct mode Please suggest a few good funds
Pattu: (1) I do not provide product suggestions and (2) Direct = (a) DIY or (b) professional advice from a fee-only financial planner.
Deepak: Dear Sir, How many Mutual Funds should one normally have in his/her basket to ensure an all round balance Thank You
Pattu: Depends on your definition of balance. Assuming you are referring to equity, just one fund (say a multi-cap) will do. The question is, whether you wish to use the same fund(s) for all long-term goals or separate funds. Both has pros and cons and for my needs I prefer separate. Read more:
Arshi: Time and again, you have shared the advantage of de-risking of investment using portfolio rebalancing, is the rebalancing still warranted if the returns exceed expectation and the portfolio is more skewed to debt due to late start in equity
Pattu: If the current worth of the portfolio value is healthy enough and it would grow as current allocation to meet your future needs, no rebalancing is necessary.
Maninder Singh: Dear Sir I have not been able to gather things from your website to evaluate my mutual fund SIP and Lumpsum investments in terms of results. Kindly help in this regard. Also, if any video is available, make it available. Further, which is the recent mutual fund screener to select mutual funds for investment. Thank you and regards for putting great efforts in increasing financial literacy of millions of people like me.
Pattu: Please see the answer given to Neeraj (above) and you check the many fund reviews I have done or these videos.
Deepak Misra: Hello, I must first sincerely thank your for your blog. Though I have been investing for more than a decade, it is only after i read your blogs did I realize that what I was doing was quite random and without any strategy. At one point I had 25 MFs in my portfolio!!!. Anyway , your blog did get me towards a strategic approach to investment. I have been lucky that i was quite disciplined in putting monthly money into icicidirect and ensuring that money was not withdrawn from this account. I was doubly lucky that this approach gave me an XIRR of 12-15% over 10 years. Now my question is: 1) I dont see in your articles any place where you compare the returns from a single fund versus diversifying in say 3-4 funds. Have you done any study on this? Theoretically it makes sense to stick to one fund but then this is psychologically quite stressful!! Deepak P.S. I think your book mandatory belongs in everyones bookshelf. Reviewed with the same comment on amazon
Pattu: Thank you for kind generosity. I have been wanting to make this comparison, but it is hard because the choices will have biases. Let try and think of a way.
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