I will shortly be opting for voluntary retirement and plan to invest part of the proceeds in mutual funds. In your opinion what should be the kind of funds where I can invest a lump sum amount? The investment strategy should give me 10 per cent annually (post tax). I would prefer one or two low risk funds. Also advice if I should invest directly or through a broker?
-R. Ramakrishnan
As you wish to achieve an annual return of 10 per cent, your fund selection should include some debt, hybrid and arbitrage mutual funds. There is no need to invest in pure equity diversified mutual funds as they will be high on risk and will tend to be more volatile. Selecting good quality funds would be the key. Invest in well rated funds after properly evaluating the performance history of the fund over years. Over the past few years such funds have generated healthy returns close to 10 per cent. While selecting a MIP (monthly income plan), which are debt-oriented funds, make sure you choose one according to your risk appetite. Every MIP has a different equity-debt allocation.
Arbitrage funds are treated at par with equity funds while computing tax liability. Hence they attract no tax after one year of holding. You also have the option of reducing the tax liability of debt or debt oriented funds by using the indexation feature.
This article was originally published on May 28, 2008.
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