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Freefincal Q & A: Investing a lump sum; Annuities; Asset allocation

Each week, I try and answer generic questions on personal finance. You can use the form below to ask your question. Here is this week's edition.

Siva: Hi Sir, I have started a LIC policy (Jeevan Anand for 20 year period) as a last minute tax saving option 6 years back. I am paying 27000 P.A as premium. I have used this for 80c exemption for the last 6 years. I have few questions on closing this policy 1) Do I need to pay tax for last 6 years. 2) Do I need to pay tax for the amount I get back from LIC this year 3) I know they wont give back 27K*6 as closure amount, What is the normal range I can expect

Pattu: No to (1) and (2). You can expect to lose at least 1/3 of the current policy value (not just your total investment), but don't expect much anyways! You can get an estimate with this tool: Insurance Policy Surrender Value & Paid-up Value Calculator

Ashwin S Raje: How much money is today required for a couple around 58 years old. ? Husband has just retired from a job. Pension is not there. only some savings in Bank along with Mutual fund investments of Rs 10 Lacs & PPF balance of Rs 7 Lacs. Please guide Regards

Pattu:  I cannot respond to this without knowing the expenses required. On the face of it, it appears as the couple cannot take any kind of risk and will have to buy an annuity with most of the amount.

You can calculate with this tool: When should senior citizens purchase an annuity?

krishnaK: Hello Sir, if someone in his 30s receives an inheritance of around 10L-20L, where to park this money ? what could be the asset allocation recommended, if he don't need the money till retirement.

Pattu:  You can consider an asset allocation of about 60% equity and 40% fixed income.

Atul: Dear Pattu Sir, I've been reading your blog for a couple of months. And I want you to thank you for spreading financial literacy and many perspectives on minimalist portfolios, treating balanced funds as core holdings and many others. I am 32 years old, beginning my investment journey for long term goals like house (10-15 years) and retirement (25-30 years). I live in Europe (with compulsory health insurance and tax-payer funded schools and university). I have 2 questions: 1) What is your opinion on high conviction concentrated portfolios like ICICI Pru Value Discovery, Quantum LTE, Motilal Oswal Focussed Multicap 35, etc (having 20-40 stocks) vs many other equity funds etc (having 60-90 stocks)? Are there any advantages/disadvantages for a long term (10-20 years) disciplined SIP investor? 2) Do balanced funds take undue risk by either buying much mid/small caps or low quality credit papers on debt side? Thanks and Best Regards.

Pattu: You can expect the fund volatility to be higher if the number of stocks reduces. In any case, one cannot get married to any fund unless there is proof of performance. So whichever fund you choose, as long as you know how to review and modify your portfolio, it is all good.

Lavesh Dixit: Dear Pattu, First of all, I would like to appreciate you for delving into robo advisory. I am pretty exicted for the platform to be coming up on freefincal. Now my question. How can I know the number of units in AMC 'X' that are held by me (investment made either as SIP or lumpsum at different times) for more than 365 days (or whatever is the free of exit load days) and are thus "exit load" free. Currently I manage my portfolio in Valueresearch Online portal. I have not come across any calculator which can tell me that quickly. Does any of your calculator do that? Any plans? Regards Lavesh

Pattu: Thank you. The robo template is in its final stages of testing. You can use this to find out the tax and exit load implications before you make a withdrawal: Mutual Fund Capital Gains Calculator

Rahul: Thanks for the nice article. I have a following query: 1) How to find the returns of an irregular inflows & outflows over a short period, lets say in 4 months? I dont want to use the XIRR as it gives the compounded annualized return, which will be misleading. I want the returns for the duration of the investment. Please consider following eg: Date Action (buy/Sell) Qty Rate Amount 1/7/17 Buy 200 100 20000 6/7/17 Buy 100 90 9000 16/7/17 Sell 150 130 19500 4/8/17 Buy 100 105 10500 20/10/17 Sell 250 140 35000 Thanks Rahul

Pattu: You can calculate the absolute return which is simply percentage gain or loss for each transaction or for the sum of all transactions.

Absolute return = (current value - purchase price)/purchase price

This is independent of time. Whether this is of any use or not, is another matter!

gunda: Sir, Can you give some examples of balanced funds that have some international equity exposure and have at least 65% indian equity exposure? Thanks in advance.

Pattu: I m not aware of any. Perhaps readers can help.

Champaknath: Dear Sir, I have these queries : 1) My elder son has completed his MS in USA , and is having a job there, we have been depositing in his PPF account opened prior to his leaving for USA for studies, is it advisable to continue depositing into that account for any use  the future? 2) My second son also would like to study in the states and work there , so is it advisiable to deposit into his PF account also. 3) when should we make the accounts in their name into NRE/NRO account Regards

Pattu: Legally, an NRI can continue to invest in a PPF account opened when he/she was a RI. However, I can see no benefit in parents investing in the PPF account of a major, independent child. The interest/gain is technically theirs, they will have to declare this and pay tax on it as per rules of the resident country.  Yes, the parent can get a tax deduction under 80C, but it is not worth it imo.

Anil: Hi Pattu, Which funds invest both indian & international equity?

Pattu: Templeton India Equity Income Fund, Parag Parikh Long Term Value Fund, ICICI Prudential Indo Asia Equity Fund. There should be others.

S KRISHNAN: Detailed Application Form , erms and conditions , instructions , guidelines , needed for P M V V Y Sr. Ctzns. Pension Scheme ( 8% ) payable monthly / quarterly / half-yearly / yearly ; any help from you . in this regard.

Pattu: All details are well documented at the India post website.

Rajesh: Sir, I am a NRI.I have surplus cash of Rs. 30 lakhs which will not be required for 10 years.I want to use this amount for retirement.I have sufficient income to take care of my family needs including emergency fund,term policy,etc.Can I invest in single shot in a Multicap fund or Balanced fund or SIP or STP for two years .I had gone through ur articles regarding lumpsum investments.Please advise how to proceed.

Pattu: For a ten year duration, I would recommend about 60% in a balanced fund and rest in fixed income. Say a liquid fund, ultra short term fund or arbitrage fund.

You can invest the 40% in one shot and rest into balanced fund, manually spread over a few months (not too long). Avoid STPs.

Milap: I have a some query. Which is the best option to get a more interest , lumsum or SIP?? Waiting for your best advice for this .

Pattu: No idea.

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2 thoughts on “Freefincal Q & A: Investing a lump sum; Annuities; Asset allocation

  1. Sai

    Dear Pattu, To answer Lavesh: for the question. How can I know the number of units in AMC 'X' that are held by me (investment made either as SIP or lumpsum at different times) for more than 365 days (or whatever is the free of exit load days) and are thus "exit load" free. Currently I manage my portfolio in Valueresearch Online portal. I have not come across any calculator which can tell me that quickly. Does any of your calculator do that? Any plans? Regards Lavesh

    Birla SL MF has this exit load summary that i know and it can be extracted in Excel sheet which gives the investment date and exit load directly, other fund houses i am not sure.

  2. hemanj reddy

    by using CAMS portfolio statement, we can get the information related to aging of mutual fund investment .


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