MF-Query Board
Hello Sir/Madam, I am a regular reader of Dalal Street Investment Journal and given below is my query. In line with my faith, I am currently an investor in Tata Ethical Fund & Reliance Shariah BeES fund. I would like to know that, apart from these two, if there is any other mutual fund, which has only non-banking companies in its portfolio and provide inflation beating returns?
- Syed Umar
Tata Ethical Fund has performed almost in line with its benchmark index S&P BSE 500 Shariah TRI. In accordance with your faith, you actually have a limited choice in mutual funds. Having said that, you can consider some of the funds that invest predominantly in the consumption sector. These funds usually invest in FMCG stocks and consist of non-banking companies. However, while investing in these funds, it is really important to understand that they are not Shariah-compliant and, hence, they might end up holding a banking company in the future.
SBI consumption opportunities fund and Tata India consumer funds are some examples of those funds, which do not hold any banking or non-banking financial company's stocks at present. Looking at their past performance, it can be safely said that they have performed better than ethical funds. However, you should note that they are purely sector funds and are prone to cyclical risks. So, it is better to first understand what your risk profile is and then consider investing in them. Typically, you can invest in them if you are saving for your financial goals, which are your wants and not your needs. However, for financial goals that are your needs, it is important to make a decision based on your goals and risk profile. In such a situation, seeking your financial planner's help is advisable.
I am 35 years old and have recently started investing for my retirement. For the same, I have started contributing `50,000 per annum towards NPS. I want to know that should I invest in mid cap funds or small cap funds to achieve my retirement corpus?
- Anant Singh
It is rightly said that the best time to start planning for retirement is when you start working. If you did not then, the next best time is now. Everyone needs to plan for retirement. John Lennon once said, "life is what happens while you are busy making other plans." Retirement planning is a process that will help you set up for a successful retirement. It becomes important to have a retirement plan in place as it is the only phase after your first job, when you will have to witness low income or, in a worst-case scenario, no regular income. We are glad to know that you have considered planning for your retirement.
Let's come to your query. You are still 25 to 30 years away from your retirement; hence, you can consider investing in both these categories, as they tend to perform better in the long term. However, you need to understand your risk profile to move further towards selecting an investment avenue.
As you said that you have started investing in a new pension system (NPS) and, we assume that you are working for some company, you also may be having EPF (Employee Provident Fund). So, your first step needs to be getting how much you require at the time of your retirement, that is, your retirement corpus. After this, you should go about whether to invest in large cap, mid cap, small cap, or combination of all based on your risk profile. Seeking assistance from an expert financial planner would help you in making an effective retirement plan. Currently, you are contributing towards NPS and, based on your risk profile, you can opt on how much you should invest in equities. Also, you have an auto-pilot feature in NPS that automatically rebalances and, as you grow older, it changes its asset allocation towards a more conservative stance.
