Q1 - I am a 30 years old male from a tier 2 city. I started working five years ago and have been investing my money in mutual funds since 2020. Most of my mutual funds investments are negative. Is it wise to remain invested in focused funds or shall I switch to something else?
Focused funds consist of concentrated portfolio bets majorly ranging between 20 to 30 stocks spread across different sectors. Such funds fall under the equity asset class that entail higher volatility as compared to any other asset classes.
To reap the benefit of higher returns, the ideal timeline of any equity investments should be 4 years+ as it takes into account both compounding and participation into different market cycles.
Having said that, one also needs to assess the quality of the scheme based on parameters such as risk-adjusted ratios and past performance and compare it with other schemes within the category. If the target scheme is placed well based on the parameters discussed, you may stay invested.
Q2 - I have some stocks with a notional loss since the markets have been down for some time now. Can I sell them now and set off that loss against my salaried income to lower my income tax? I want to hold them for the long-term so can I buy the same stocks again on April 1?
Losses made on the sale of capital cannot be set off against any other heads of income such as Salary, House Rent or Business. If your holdings are fundamentally good and you don't need your invested money for some other important goals, holding them will be fruitful.
Q3- My daughter just turned 5. I am thinking of starting some investments for her adulthood. Is Sukanya Samriddhi a good investment for my daughter or shall I just invest in a mutual fund?
Generally, when you save for a goal you invest some portion into stable assets (Eg. Fixed Deposit, PPF etc.) and some in Growth Assets (Eg. Equity Mutual fund, Stocks etc.)
Sukanya Samriddhi Yojna is a good stable investment option. The interest rates offered are generally higher than some of the other stable asset classes like Fixed Deposits, Public Provident Fund (PPF), etc.
You can claim tax benefits on the deposits you make towards this, i.e. up to Rs. 1.5 lakh per financial year (under Section 80C of the Income Tax Act, 1961). Further, the interest and the maturity amount is also tax free.
The proceeds will be available at your daughter’s age of 21. You can consider investing a portion (maximum Rs.1.5lakhs/ year) into Sukanya Samriddhi Yojna while the remaining can go towards mutual funds for diversification. Bifurcate your investments based on your risk appetite.
Q4- I made a couple of big-ticket purchases on my credit card in 2020. I paid one in full well before the credit card due date and refinanced the other under COVID moratorium scheme. My CIBIL score has dropped. Could you please explain what could be the reason?
Ideally, as per RBI directive, the CIBIL score should not get impacted due to the COVID Moratorium opted as it was not considered as default. However, you were required to pay the interest incurred during the moratorium, once it ended. You can cross check on the payments which were due post the moratorium to understand the reason behind the same. Further, ensure that all future payments due are paid in time.
Q5 - I am 25 years old, planning to get a term insurance of about ₹2 crore. Should I get two separate insurance of ₹1 crore each or just a single one?
The benefit of separate policies is the option to stop paying premiums for one of them when the need for life cover reduces in the later years of life. So if the premiums are similar for both options, you can opt for two policies. Do evaluate your life insurance cover requirements based on the dependency on your income to take care of the expenses, liabilities and goals.
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
International Money Matters Pvt Ltd is a SEBI registered personal finance firm.