To invest in mutual funds, NRIs need to submit a copy of passport and provide an overseas address proof

To invest in mutual funds, NRIs need to submit a copy of passport and provide an overseas address proof

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I have invested Rs5,000 each in Edelweiss Equity Opportunities Fund, HDFC Balanced Fund, ICICI Prudential Long-term Fund, and L&T India Prudence Fund, via SIPs. I started these 11 months back. I can invest Rs20,000 more in mutual funds. Are my choices correct or should I exit any schemes? Please also suggest some new schemes to invest in.

—Radha Arora

Your SIP portfolio currently has a good mix of equity and debt funds. The overall asset allocation ratio of your portfolio is close to 60:40 between equity and debt. Of the four funds you hold, you have one pure equity fund (Edelweiss), one pure debt fund (ICICI Pru. fund), and two balanced funds that on average have about 30% in debt and remaining deployed in equity, and thus the 60:40 allocation. The funds that you are investing in are good, but apart from the balanced funds, they could do with periodic scrutiny to ensure that they are performing well.

Going forward, to deploy another Rs20,000 into your portfolio, you can choose one of two paths. You can either keep this same asset allocation, or you can make it slightly more risky by going for a 70:30 allocation. If you are a long-term investor, even if you are a conservative risk-taker, a 10% increase in equity allocation should be fine and could have a good effect on your returns. If you would like to keep the same allocation ratio, I would suggest that you add Rs5,000 each to your existing balanced funds (HDFC and L&T), and deploy the additional Rs10,000 in another equity fund and a debt fund similar to your current portfolio. You can use Mirae Asset India Equity fund and ICICI Prudential Short Term fund for this purpose. If you would like to move to a 70:30 allocation, you can add Rs5,000 each to your balanced funds. With your remaining Rs10,000, you can add Rs1,000 to your existing debt fund, and split the remaining Rs9,000 between two equity funds—the Mirae fund mentioned earlier and Kotak Select Focus fund would be good choices in this regard.

I am an NRI living in Dubai. I want to start investing in mutual funds. Am I allowed to invest? If not, I can invest through my wife who lives in India. Kindly tell the process and some schemes to invest in. I can invest Rs60,000 every month.

—Jospeph Kurivalla

NRIs living in Dubai can invest practically in any mutual funds in India. As NRIs, however, they would have to follow a few stipulations— they would need to register their know-your-customer (KYC) details as an NRI (by submitting a copy of passport and providing an overseas address proof), and they would need to invest through an NRI bank account (a non-resident ordinary rupee (NRO) account or a non-resident external account (NRE). Apart from this, you would need to note that at the time of redemption, there would be tax deducted at source (TDS) that would be applicable—this can be claimed back, as applicable, at the time of filing of taxes.

If you are investing for the long term, you can invest in a well-diversified, balanced portfolio, especially given the quantum of money you are planning to invest through SIP. A five-fund portfolio consisting of four equity funds that target different segments of the market, along with a debt fund, would make a solid set of schemes to start with. Your SIP investment can be split equally between Aditya Birla Sunlife Fronline Equity fund (large-cap equity fund), ICICI Prudential Value Discovery fund (a diversified fund), Invesco India Mid-cap fund, HDFC Mid-cap opportunities fund (both mid- and small-cap funds), and UTI Short-term income fund (a debt fund).

I am new to investing. Please tell me what is NAV and expense ratio. I want to try and invest Rs5,000 every month in mutual funds. I don’t have any particular goals. Where should I begin, and how can I invest online?

—Manish Verma

New investors entering mutual funds can be disheartened by the bevy of acronyms and technical jargon that confronts them immediately. However, all this jargon cannot take away from the fact that mutual fund investing, at the basic level, is a simple affair. To answer your questions, NAV or the net asset value, is the per-unit value of the mutual fund, and expense ratio is the cost that you incur to stay invested in the fund. Mutual funds are bought and sold in the form of units and the value of these units change every day in the market.

From an investor’s perspective, what matters is that they buy at a particular NAV and sell at another NAV, and the difference between the two denotes either profit or loss. For example, if you invest Rs1 lakh in a mutual fund whose units are valued at Rs25 each, you would end up buying 4,000 such units. If a few years, when you wish to sell, and the units are valued then at Rs40 each, you would get Rs1.6 lakh (=4000 x Rs40), and you make a profit of Rs60,000 on your investment.

The money that you invest is managed by a professional fund manager and there are various other costs involved in managing your money. This cost is recovered from your investment and is represented as expense ratio—as a percentage of the invested money, ranging from 0.2% to 2.8%, depending on the fund.

To start in mutual funds, please go with balanced funds. Split your investment amount equally between HDFC Balanced fund and ICICI Prudential Balanced fund.

Investing online is a convenient way to go about this, and the search engine will throw up a variety of options to do so.