Follow Us:
Friday, July 20, 2018

Equity markets in doldrums,wait for better time to exit

I have invested in a diversified equity fund for five years,but after seeing negative returns,I have discontinued paying.

Written by DhruvaRajChatterji | Published: June 11, 2013 12:29:44 am

I have invested in a diversified equity fund for five years,but after seeing negative returns,I have discontinued paying. Should I redeem all the units or leave it for few years for the market to recover?

— Somenath Roy

Your experience is also being shared by other equity fund investors in India,whose returns stand low or in the negative over the past five years. Equity markets have not gone anywhere over the past five years,as a result,the returns of your diversified equity fund is also in the negative. Investment in equities is for the long-term and requires patience. If you exit now,then your five-year wait will go in vain as you will be exiting incurring a loss. I would recommend you to stay put for some more time and wait for the markets to recover,unless you require the money urgently. Also,it may make sense to review how your fund is faring versus other peer group funds,and if it has underperformed by a considerable margin over a market cycle.

How do I select a pension mutual fund and what kind of

returns can I expect after

20 years?

— Pushkar Nath

There are only a few pension related mutual funds (MFs) available in the market. Templeton India Pension Plan and UTI Retirement Benefit Plan have been around for several years and provide tax-saving benefit under Section 80C. These funds invest around 40% of the portfolio in equities and the balance in debt and money market instruments. Tata Retirement Savings Fund,launched in 2011,has various asset allocation plans,depending on your age and risk profile. However,this fund is not eligible for savings under section 80 C.

Besides MFs offering pension plans,there is also NPS (National Pension System),which has similar architecture and invests in various asset classes (equities is capped at 50%,corporate bonds and government securities). This is a low-expense product and also provides default life-cycle option where your equity exposure and asset allocation changes as per your age profile. Some tax-benefits have also been recently extended to NPS. However,do note that this is a very long-term product and you cannot exit from the fund (Tier-1 account) before the age of 60,after which partial withdrawal is allowed and for the remaining amount you have to purchase an annuity. The pension plans provided by MFs offer better liquidity. It is difficult to estimate returns from these products as they are market-linked.

Can I opt for variable withdrawals in systematic withdrawal plan or does it have to be a fixed amount?

— Ashwini Kumar

Yes,you can opt for variable withdrawals in a systematic withdrawal plan. It may not be available for all frequencies/intervals,so check for what interval the plan is available. Also,it is largely available for growth option only,so do check that as well.

n The author is senior research analyst,Morningstar India

n Send your queries at

For all the latest Business News, download Indian Express App