Booking profits in a hasty and haphazard manner can be costly
19-Nov-2009 •Research Desk
I am a 45 year old banker. I had been investing in 6 equity schemes (growth options) through monthly systematic investment plans (SIPs) for the last 3 years. The approximate aggregate investment was of Rs 2.38 lakh. I redeemed all my units recently as I was quite happy with the annualised returns ranging between 15-20 per cent. Also, I felt that the market was running at a rather brisker pace than was warranted. The approximate maturity proceeds will be Rs. 3.45 lakh.
I intend to re-invest these proceeds in the following manner:
1. Rs 1.45 lakh in bank deposit
2. Rs 1.00 lakh in HDFC Prudence Fund ( Growth)
3. Rs 0.50 lakh in DSP BlackRock Balanced Fund (Growth)
4. Rs 0.50 lakh in FT India Balanced Fund ( Growth)
Apart from this I intend to invest Rs. 5,000 each through monthly SIP mode in the following 4 schemes from November, 2009:
1. HDFC Top 200 (Growth)
2. ICICI Infrastructure (Growth)
3. Reliance RSF ( Equity) (Growth)
4. DSP BlackRock World Gold Fund (Growth)
I seek your advice on the following:
1. What will be my tax liability, subsequent to redemption?
2. Your views on my plan of re-investing redemption proceeds.
3. Your views on my selection of schemes for SIPs.
- Sudhakar Narayan Mestri
Since all your investments are in equity funds you do not have to pay any tax on the investments that are more than one year old. But for investments done within a year, you will have to pay tax at the rate of 15 per cent (plus surcharge and cess) on the gains.
However, we totally disagree with the way you have redeemed your portfolio. What you have done is to lock-in your investment. If you had maintained a balanced portfolio with debt and equity, then re-balancing would have taken care of profit booking.
Regarding your next query relating to reinvestment plans, your selection of funds is quite impressive, as all of them are either rated by Value Research Star Rating as 4- or 5-star. But it would be prudent if you go via SIP in balanced funds also.
Your current portfolio in all circumstances would be able to give adequate returns and you can certainly do without investing in DSPBR World Gold Fund, a specialty fund of funds that tracks gold stocks.
While investing in bank FDs is all right, you might still consider going for a debt fund as it is more tax-efficient and liquid in comparison. But before going for the debt fund please decide on the debt-equity allocation and rebalance your portfolio regularly to maintain that balance.