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Question: While the EPFO rate was earlier 8.5%, it has been hiked to 8.65% giving many employees a reason to cheer, because this rate is the highest since FY16. As I said, it does give people a reason to cheer but let us understand the tax implications of this. It gets kind of confusing on what amount is taxable, is my investment deducted under HIC? Am I taxable when I get the interest amount? If you could just clarify on those bits.

Tarun Birani: Yes, definitely it is a cheerful time for all savers in EPFO schemes and 8.65% is definitely one of the best rates one can think of. Just to give a perspective, from a taxation point of view, this scheme is available under 80C benefit also where one can take the benefit of 80C in this. Apart from that, at maturity, it is completely tax-free, which makes it one of the best schemes in terms of post-tax returns. If you look at post-tax returns, it looks to be close to around 13% which any comparable fixed investment cannot offer today. So I feel it is one of the best options available in the current scenario where we are today.

Q: (Prince): “I want to get my portfolio reviewed. I have been investing in SBI Bluechip for 5000/- per month, Axis Long Term Equity, 5000/- per month, Reliance Small Cap which is 3000/- per month”. I think he also has a question about whether he should step up his SIP’s. He is 33 years so he definitely has a long-term horizon as well. So what are your views on that as well as the funds which he has chosen for his portfolio?

Tarun Birani: Let me congratulate you for asking the question in a mature way. There is a lot of involvement in terms of financial planning which is commendable. My only request is that you keep up this goal-oriented approach for a long period of time. I can see you have a house purchase and financial freedom retirement goal in mind while investing. Make sure you continue with that. The fund related question is secondary. The most important part is that you have to make sure it is a test match which you are playing and not a 20-20 match. So keep continuing it. We have seen a couple of one data of SIP’s which are coming. We have seen some fall in the SIP data. There are a lot of 1st-time investors who have stopped investing in SIP’s. So please continue with that. Coming specifically to your portfolio and the schemes which you have selected, at age 33, yes, you can definitely take the risk.

But you have to be cognizant of the fact that, most of your investments are centered around small and mid-cap funds. You should be ready for big falls. Just to give you a perspective that in 2008, we have seen markets falling as high as 40-50%. You should be ready for any kinds of falls in the market and you should take a more long-term driven, 10-year oriented approach because these small-cap returns are going to give you returns over that period of time. Now coming specifically to your goals, if I look at your house goals, this goal is 10 years away and you are looking at a 30 lakh down payment.

I think a 15 thousand monthly investment can help you achieve that goal. The second goal of financial freedom retirement which you are talking about, I think it is around 22-25 years away for you and you are looking at a corpus of 10 crores because, with the kind of monthly expenses you have, you will require that kind of corpus. So that requires approximately around 60 thousand monthly savings for you and your current resources are not enough to take care of that. So you need to start at least 30-40 thousand more investments if you want to achieve that goal.

Q: (Mr. Subramanyam): I worked for a product company for like 40 years and I did not withdraw my provident fund amount on retirement. I kept it all for 3 years post-retirement. My query is that will the amount of these 3 years be taxable in my hand?

Tarun Birani: In your case, around 60 is the cut off age for retirement. Any interest which you are going to earn after that will come under the taxability radar. So I would strongly recommend that you reach out to your tax consultant to get a very specific view around that and you will have taxability coming in for that.

Q: (Pavan Kumar): I have been investing in SIP’s for the last 18 months and my goal is to invest for 20-25 years to accumulate 3 crores for a time. I want your opinion on the fund selection and how I can achieve my financial goals?

Tarun Birani: While scanning all through these investments, I can sense that the way you have structured all your funds are in various strategies like multi-cap, balanced strategy, mid-cap strategy. So there is a fair amount of diversification and I’m very happy about that. With the current investments that you are doing, I feel that it is sufficient to achieve 3 crores in the next 20-25 years. I would recommend you to continue with that.

Q: (Shrinivas Rajagopalan): My goal is for well creation for his retirement and I’m a moderate to a high-risk taker. I’m investing in a variety of funds since Feb 2016. (ABSL MNC fund, DSP BlackRock Micro-Cap, BNP Paribas Midcap, etc) so I’m investing a total of 10,000/- per month for the last 3 odd years. I want your opinion on the fund selection.

Tarun Birani: My quick piece of advice would be since you have mentioned your risk tolerance level is moderate to aggressive kind of stands, and he already 46 of age. First, we need to understand where we are today. I feel the market situation in 2019 looks somehow like the 2012-13 scenario to me. Though I never talk specifics for the market in the short-term, but I can see a kind of a trend emerging wherein you would see a lot of volatility emerging in this year specifically. So my quick advice to you is to allocate a lot of funds and corpus to asset allocation balance strategies because markets are going to be extremely well tied if you are looking at funds for a short period of time.

Then even in 3 years, you may not achieve your goals with the equity funds. But specifically for a long-term retirement goal, you can continue with your SIP’s which you have right now, and maybe in the next 3 to 6 months in continuing with your standard approach into mid and small-cap, which are already 30% down from their all time highs. I think it makes a lot of sense to continue them.

Q: (Arvind): I want an amount of 1 crore rupees after 15 years and if it is feasible to expect this kind of return from equity mutual funds. (Reliance small-cap funds, Aditya Birla SL Eq Advantage, Tata Equity PE, etc) I am investing over 16-17 thousand per month. I want 1/4th of the 15 years. I want to know whether it is feasible for me to accumulate 1 crore after 15 years.

Tarun Birani: Take it like a test match. Keep playing for the long term. Don’t take it for the short term. But if you have a 15-year mindset and the kinds of funds which you have selected, i can see one very interesting strategy which you have picked up, is the asset location strategy which you have in your portfolio and I feel markets like this will give a lot of opportunity to strategies like these. So I can see that your portfolio is well-positioned for the long-term and for your requirement of 1 crore rupees in the next 15 years, you need to save 20 thousand rupees. You are almost saving 80% of that money.

Maybe you can start some more investments into balance oriented strategy because I want you to play it for the long term. Let’s say in 3 to 5 years, you may have some dissatisfaction because of equity markets not going well. So over a long period of time, some balance fund addition could be recommended in your portfolio.

Q: Tarun, what would be your rating of the DSP small-cap fund?

Tarun Birani: DSP small cap over a long period of time has done exceedingly well and you can see the kinds of assets which are there in your portfolio that demonstrate that lot of faith of investors is there in this scheme. But we need to understand that 2018 was a year where all mid and small caps have taken a big beating and due to that the 2-3 year returns may not look very good. So my strong advice to anyone who is looking at investing in such a strategy would be to look at at least a 7 to 10-year minimum horizon. Without that horizon, don’t enter into schemes like this because it may give huge surprises for first-time investors. Say over 5 years you can see a 25% return or 20% return in this strategy. But this strategy for one year can be down by 40-50% also because the objective of this scheme is to invest into small caps, so take it with a minimum 7-10 year horizon, otherwise don’t enter into the scheme. This is a very good scheme managed by a very capable fund manager and one can look at this scheme.