Investor Q&A: Is 50% equity and 50% debt for me with a low risk profile okay?


Hi Swapnil, thank you for sharing the information, it was quite helpful and cleared most of my doubts. But I have few more doubts:

1. Suppose I invest 5000/- monthly for 25 yrs for retirement goal under low risk, how and when will be the tax deduction done?

The tax will not be deducted by the Mutual Funds i.e there is no TDS. This will need to be paid by you as and when applicable as part of filing your annual IT return.

Tax is applicable on Mutual Fund investments only on withdrawal. If you continue to stay invested in the same funds throughout, there will be no tax.

However, since we will be helping you with the automated portfolio rebalancing annually, you may end up booking some profit, which would need to be filed under your return. You may also book loss in some years, which can be used to offset profit in same or further years (it can be carried forward for up to 8 years).

The net tax applicable would be paid by you to the IT department for the corresponding financial year when you file your IT return.

You can read a detailed explanation for the same at our blog here: http://blog.goalwise.com/all-you-wanted-to-know-about-mutual-fund-taxation/

2. Opting for 50% equity and 50% debt for me with low risk profile, will it be beneficial or risky?

Across goals, we recommend maximum 40% equity allocation for Low risk profile. The idea is that in a 2008-like scenario, with market crashing by 50%, your portfolio value may be down by 20%. This is enough to cause anxiety to many people. More loss than that will trigger greater stress, and often leads to withdrawing investment at the wrong time and missing out on the market recovery.

You can read in detail about risk profiling at our blog here: https://www.goalwise.com/blog/what-is-risk-profile-in-investing-and-how-is-it-measured/

So we wouldn't recommend such a custom allocation of 50% equity and 50% debt.

Additionally, the goals on Goalwise have built-in automatic 'glide path', which reduce the equity component as you reach closer to the goal. So even the 40% allocation would only be for the initial years.

You can read more on glide path here: https://www.goalwise.com/blog/how-to-protect-your-investments-from-market-crashes-by-goal-based-investing/

3. What is the role of one time investment?

This is to allow investment of any money available as lumpsum eg: tax refund, salary bonus, inheritance etc. SIP is suited for investment through monthly savings.

4. Can we customize the amount of SIP at different time intervals?

Yes, you can do so. Here's a short video to guide you: http://blog.goalwise.com/how-to-change-sip-amount/

5. It is mentioned exit load is 1% on equity MFs, What is this? Is it applicable to equity MFs for retirement goal, if yes then how much will it be?

Exit load is kind of an early withdrawal penalty applied by the Mutual Funds, to discourage frequent switching between funds.

Yes, exit load is typically applicable across equity funds (regardless of goal). The standard exit load is 1% of the withdrawal amount for investment done within 1 year (though some funds apply exit load for longer duration also).

You can read more on this here: https://www.goalwise.com/blog/exit-load-and-taxes-mutual-funds/

6. Do you have gold investments? What is your opinion on that?

You can use the Custom Funds option (video guide here: http://blog.goalwise.com/how-to-choose-your-own-funds/) to invest in Gold funds if you like.

We don't recommend gold as an investment as it offers returns similar to debt funds (roughly 7-8% annually), but with a lot of short term fluctuation like equity (which makes it risky as well).

If you are planning for some gold purchase as part of a child's marriage goal, then you can consider investing in these funds, withdrawing at the time of marriage, and purchasing the required gold. But even there we suggest rather to stick with a mix of equity and debt funds for the duration of the goal for better returns, and purchasing the gold when required at the end of the goal.