Funds for senior citizens

We are senior citizens. We do not need any income from mutual funds for our day-to-day living. We are conservative investors with average risk taking ability and with an expectation of minimum 10-12 per cent yearly tax free returns from this investment. We can remain invested for 5 years or more. We do not practice aggressive churning of portfolio. Most of the above funds are 1-5 years old in our portfolio. We have few other tax saving funds (Sundaram, Birla, DSP) but they are locked-in. Please suggest changes, if any, to our portfolio.

Our mutual fund holdings are as follows - Tata Infrastructure, Reliance Equity, ICICI Taxsaver, Sundaram Select Midcap, Franklin Blueship, Franklin Prima Plus, Franklin Flexicap, DSP ML Balanced, DSP BR Opportunities, DSP BR Top 100, DSP BR Equity, DSP BR T.I.G.E.R, HDFC Taxsaver, HDFC Prudence, HDFC Top 200, HDFC Infra, HDFC Growth, HSBC Equity, HSBC Midcap.

Ramesh Agarwal

Given that you have clearly stated you risk appetite and your return expectations, you can consider exiting some of the equity funds in your portfolio and instead switch to debt mutual funds.

While most of the funds that you hold have a good track record of performance we would like you to sell some of them for the following reasons: One, a few carry a higher risk profile than acceptable for you. Two, some of them would duplicate your portfolio – by investing in similar themes/stocks. Three, you would be better off with a more compact portfolio as too much diversification would also require you to actively track funds and churn them if need be.

In light of the above, we suggest some changes to your portfolio. Reliance Equity has been an underperformer. You can consider exiting it. You can also consider moving out of DSPBR Top 100 and HSBC Equity. HDFC Top 200 and DSPBR Equity should suffice in their place. Sell Franklin India Prima Plus and Franklin India Flexicap; these may not suit your risk-return ratio. Avoid entry into sector funds which are close-ended. HDFC infrastructure is one such scheme. Exit this after the lock-in as DSP BR T.I.G.E.R should be able to provide you an exposure to infrastructure and capital goods investing.

If your tax saving funds — HDFC Taxsaver and ICICI Pru Tax Plan have become open-ended, you can consider en-cashing them. The mid-cap exposure that these funds typically assume would be available to you in other mid-cap funds that you hold — Sundaram BNP Paribas Select Midcap and Birla Midcap . Besides, if you had held the above tax-saving funds for just over 3 years, they would have turned in single-digit returns, lower than your 10-12 per cent expectation. In general, given your risk profile; do not invest in tax saving funds for the sake of gaining tax deductions. Safer options such as post office senior citizens’ scheme offer tax deduction under Section 80C and provide regular payout, albeit at 9 per cent.

Here are a few other you can consider adding to your portfolio: HDFC Prudence, UTI Mahila Unit Scheme (can be invested by your spouse), FT India Life Stage FoF 50 Plus and HDFC MIP Long Term. Note that debt funds are not free of tax. While dividends are exempt, the capital appreciation both short and long term would suffer capital gains tax.

Low interest rates in Fixed Deposits


I am 62 years old. I parked the majority of my savings in bank fixed deposits. The interest rate of FDs are now very low. Please suggest alternative avenues of investments such as mutual funds so as to earn an average return of 12 per cent. I can stay invested for a long term of five years.

Krishnan U

We assume you are not dependent on mutual fund investments for your monthly income. Fixed deposit rates maybe expected to go up again in 2010. So do not lock into any long-term investments now. Mutual funds would provide you sufficient liquidity, if you wish to switch to FDs at a later date.

You can consider investing in diversified equity funds such as HDFC Top 200 and Quantum Long Term Equity, HDFC Prudence (balanced fund) and debt fund HSBC MIP Savings. Please note that mutual funds do not guarantee any returns the way fixed deposits do. However, if you hold these funds over the long term, the portfolio return (not necessarily individual funds) is likely to meet your expectation.