SHOULD I INVEST IN ELSS

I hold the following funds over the last four years: DSP BR Opportunities, Fidelity Tax Advantage, Franklin India Flexicap, HDFC Equity, Reliance Growth, Magnum Tax Gain, Sundaram BNP Paribas Select Midcap, Tata Infrastructure, and Taurus Mutual. Comment on the suitability of these funds in my portfolio. I am 55 years old, retired from service. I had purchased units in Magnum Tax Gain Scheme to avail tax rebate. Please advice if this would be a good avenue to invest again. Please also suggest any government schemes which you feel merits consideration.

Anil Kumar Singh
While most of the funds you hold have been generating above-average returns, we would like you to consider some changes. Switch to Templeton India Growth, instead of Franklin India Flexicap. This would lower the risk profile of your portfolio. You have not mentioned the name of the scheme in Taurus Mutual. We nevertheless, suggest you exit it and instead take exposure to HDFC Prudence. Hold Tata Infrastructure only if you are keen to bet on the sector's prospects. Even then, book profits and retain just your original capital. In all other funds, given that your average holding period is already four years, sweep some profits by partly selling units if the fund has not itself declared much dividend .

We do not recommend too many tax funds for retired investors unless their risk appetite is high, as investing in ELSS also poses the risk of losses to the capital itself. You have not mentioned whether you retired under a voluntary retirement scheme offered by your employer.

If you retired under a VRS scheme, you would be eligible to invest in Post Office Senior Citizen's Scheme at the age of 55 (otherwise, 60 years). Investment in this scheme is eligible for tax deduction at present. Note that ELSS as well as Senior Citizen's scheme may lose their tax-saving status, if the direct tax code is implemented in its current form in the upcoming budget.

Online mutual fund platforms

I recently came across a website named www.fundsindia.com. It has a platform to buy mutual funds without any brokerage charges, in fact zero charge. Although I have registered with them, I am sceptical about investing. Are there other such platforms? Is there any risk in investing in these kinds of online sites? How do they get paid?

Mageswari
Fundsindia.com is a more recently launched online platform to buy and sell financial products — mutual funds to begin with. The fund seeks to provide services free of all charges and entry load. But now, after the removal of entry load, the cost differentiation may have gone as few other online distributors too are offering services free of cost.

Your scepticism perhaps arises from the ‘free service' offered as it may not seemingly make business sense. Please note that this portal as well as other online distributors earn their income through ‘trail fees' that mutual funds pay . Trail commission is the amount received by the mutual fund agent from the fund house for retaining a customer's investments.

Among the other services that the portal provides, aside of systematic investment plans (SIP), are services such as a ‘trigger option' which would allow you to specify when you want to enter/exit/book profit in a fund. That said, do note that there are other online options too through which you can route your fund investments (buy and redeem your mutual fund units) such as brokerage accounts, investing direct via the mutual fund website and the more recent entrant — stock exchange platforms.

Online distributors: If you have an online trading account, a number of brokerages allow you to buy and sell mutual funds through them, but for a brokerage fee. They maintain your fund holding and also send you regular statements on the same. Other online distributors such as ‘ fundsupermart' also allow you to transact through them. With no entry load, this service actually comes free of cost.

Exchange platforms: A more recent alternative is the trading platform offered by the stock exchanges to transact in mutual funds, without any additional costs. If you hold a demat account, you can place an order to buy or sell funds (through your broker).

While no cost has been specified for this model currently, it is likely that the broker would pass on some charges incurred by him (similar to the commission that brokerages levy for your stock market orders) in future.

Fund websites: Many funds also allow you to transact directly through their own websites. However, this would not be the best option, if you want a consolidated statement of your holding.

Most of these service providers claim to adopt high safety measures to secure your data and are said to have data back-up . If you are tech-savvy, the convenience of quick money transfer, paper-free placement of orders, regular statements and other value-added services can be enticing. But ensure that you are fully aware of the fee structure, if any, and that you make your own assessment of the schemes you wish to buy or sell.