For some time now, the Indian stock markets are experiencing heightened activity. The extreme volatility in front-end counters, accompanied by a spectacular move in mid-cap and small-cap counters, have made even the least interested folks take a serious note of the stock markets.
At the higher levels of the market, it is the individual investor who pays for the gains of smart men in the market, and hence, caution is a must. However, it is unwise to tell investors to remain out of the market. For those who are young and have a high-risk appetite, equity investing turns out to be a good risk-return game.
However, for those who want to taste equity but don?t have the high risk taking capacity, equity investments seem to be something not worth opting for, though it is something inevitable when it comes to long term wealth creation. This group comprises mid-aged population, who have never invested in equities or invested but lost, and now want to have an exposure to equity. These investors have almost 15 to 20 years of an earning span on hand, and a good investible surplus. However, they lack the ability to withstand the volatility offered by equities.
While sifting through various schemes offered by mutual funds, there are two schemes that offer a solution to this need. Templeton India Pension Plan (TIPP) and UTI Retirement Benefit Pension Fund (UTI RBPF) are schemes positioned to create wealth in the long term.
The investment objective of TIPP talks about providing regular income under the dividend plan and capital appreciation under the growth plan. For UTI RBPF the same is to provide a periodical cashflow, up to the extent of repurchase value of their holding, through a systematic withdrawal plan. Though the name mentions ?pension?, none of them provide for any annuity or pension, the way an insurer provides. The charm of the two schemes is in the investment style they follow and the ideal time horizon they are looking at.
Both the schemes follow a healthy balance between debt and equity. Almost 60% of the portfolio is parked in fixed income instruments that enjoy good credit rating. The remaining amount is invested in quality frontline stocks. The portfolio mix ensures that the schemes will offer healthy returns. Though compared with the best performers in the balanced fund category, the schemes appear to be laggards. However, for those who want to have quality exposure to equity and don?t want to see extreme volatility in returns, this strategy makes a lot of sense.
The time horizon recommended in most balanced funds is 2-3 years. However, while entering into both schemes you have to be really long-term, thanks to the heavy exit loads they charge.
The schemes are more than 10 years old. In the last 5 years, TIPP returned 23.48% CAGR and UTI RBPF delivered 19.75% CAGR. Looking at the returns, one may reasonably expect a return of 15% in the very long term from these two funds. Some may argue that one can employ a combination of a debt scheme and an equity scheme to earn optimal returns. However, tracking two different schemes that offer the right investment style with a very long-term horizon, is a task. Also, finding the schemes that are best positioned to gain from the equity market developments and interest rate scenarios is a challenge for the novice investor.
Instead, a systematic investment in these two schemes can fetch handsome returns in the very long term for investors who believe in wealth creation at reasonable risks.
