I plan to start a third SIP of Rs 10,000 a month. I have one in a large cap and one in a flexi cap. Please suggest.
Diversification is an important aspect to look at while building your portfolio, as it cushions the portfolio against any adverse movements, since different asset classes and even securities within an asset class respond differently to the same set of economic drivers. Hence, follow an asset allocation-based approach (mix of equity, debt, gold). Currently, both of your SIPs are into equity funds. You can look to build some allocation to a fixed-income (Rs 5000 monthly) and to an international equity fund (Rs 5000). The international equity allocation offers diversification across geographies and acts as a hedge against rupee depreciation. For fixed income, you could consider investing into Kotak Bond fund (Rs 2500) and Nippon India Banking & PSU debt fund (Rs 2500). For allocation to international funds, you can consider allocation to NAVI US Total Market FoF, given SEBI-imposed restrictions in place currently on funds investing overseas (except overseas ETFs).
Should I redeem some money every year to avoid paying long term capital gains if I redeem after many years?
Capital gains on equity-orient-ed funds held for more than one year are termed as long-term gains and taxed at 10% on gains in excess of Rs 1lakh per annum. The exemption on capital gains on the first Rs 1 lakh amounts to only Rs 10,000 (excluding cess and surcharge). However, to claim this benefit the market-value redeemed would have to be subject to market risk, i.e., risk of adverse market movement between the exit and re-entry date which would be ~3-days apart given the T+3 redemption for equity funds. If markets rise sharply between the exit and re-entry dates, then you could be impacted adversely as the loss from missing out on this appreciation can be higher than the benefit of Rs 10,000 derived for the fiscal year. Hence, stay invested and do not try to churn your portfolio given the market risks.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org