The DSP ML World Gold Fund is a different product from a gold ETF. The Gold Fund invests in the stocks of gold mining companies abroad. Therefore, its appreciation or fall will depend on the stock prices of these mining companies. On the other hand, the price of a gold ETF is directly linked to the price of physical gold. Therefore, if you wish to benefit directly from the rise in the price of gold, you should use a gold ETF.
I am a 33-year old male with current annual income of about Rs 2.40 lakh. I save about Rs 13,000 per month. Most of my money is in saving account or in fixed deposits, PPF, or NSC. I have two life insurance policies. The first is Jeevan Anand that I bought from LIC in 2003. It has a sum assured of Rs five lakh and an annual premium of Rs 20,798. In 2006, I bought another policy from ICICI Prudential. This is a Ulip having a sum assured of Rs three lakh and an annual premium of Rs 24,000. How should I plan my portfolio for tax saving and growth of my money Should I surrender these polices in favour of a term insurance plan Further I want to invest in mutual funds, but which ones should I choose
Parveen Rewri, e-mail
It is good to know that you save Rs 13,000 per month. You are young and must use the opportunity available to you to invest in equity markets so that you are able to build wealth and have a comfortable retirement. The insurance products that you have chosen are products of convenience. They provide some insurance and some investment benefits. Depending on the tenure and the surrender value, you may choose to surrender these products. It is usually more efficient to use a term plan to meet your insurance needs, and a combination of equity mutual funds and PPF to meet your investment needs.
You are already contributing to PPF, hence you now need to focus on building your equity portfolio. Investments in equities should always be done with a long-term investment horizon. This is because in the short term equity markets can be volatile but in the long term they are wealth creators. Since you want to achieve both tax savings and growth, you will need to use an ELSS (Equity Linked Savings Scheme) plan, such as Franklin Templeton Taxshield or HDFC Tax Saver. Investments in such schemes have a lock-in period of three years.
After completing your investments for tax saving purposes in ELSS schemes, you should examine investing in index funds. Index funds are equity-based mutual funds that invest in the stocks of an underlying index (such as the BSE Sensex or the NSE Nifty) in the proportion as stipulated by the index. The returns from these index funds are expected to closely track the returns from the underlying index. For example, if the BSE Sensex moves from 10,000 to 12000, Rs 100 invested in an index fund is expected to become close to Rs 120. Index funds such as the Franklin Templeton Index Fund-Nifty plan or the Sensex Plan could be considered.
If you choose to use a term plan, you may consider the following investment allocations. A term plan for a sum assured of Rs 10 lakh will cost you about Rs 4,000 per annum. You may contribute Rs 60,000 per annum to your PPF and another Rs 30,000 per annum to an ELSS scheme. The remainder of about Rs 62,000 may be invested in an index fund using a systematic investment plan.