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Mutual Funds Strategies For High Networth Individuals

Kiran Telang of ABT Capital Advisors lists out some mutual funds strategies for high networth individuals.

Sep 27, 2013 / 04:30 PM IST

Kiran Telang
ABT Capital Advisors

If you are someone who has accumulated wealth through your job or business or have inherited wealth, mutual funds can provide great solutions to put your wealth to work for you for the rest of your life.

You can create a beautifully diversified portfolio using various categories of mutual funds. These investments will then serve you for various needs at all points in life.

What are you looking for?

Individual circumstances differ. Hence the objective of each portfolio will differ. You could be looking at creating an income stream for life for self and dependents or further enhancement of wealth for the next generation or would want plain diversification.

The products you select from the basket of various mutual funds will differ depending on your personal choice or requirement.

How can you use different types of funds

We all know that life is unpredictable. There might arise situations which call for sudden funding requirements. They might be a health crisis or need to fund some business or providing for children in some way.

Depending on your outlook you can opt to invest a part of your corpus into debt funds. Some part can be parked in ultra short term bond funds which can act as your contingency fund. Other medium to long term debt funds can be used to further enhance your debt allocation.

These funds provide liquidity and ease of use. They are more tax efficient than bank deposits. Besides, most mutual funds now provide ease of transactions for ultra short term bond funds through sms transaction facility.

Imagine how convenient will it be for your spouse to send an sms and get the redemption in case there is an emergency that arises. The funds will come directly to your bank account within one working day, hence there is security too.

These funds can then be used through the banking channel as per your convenience. You can also use these funds to park your money which you require in short term for example an upcoming tax liability.

You might have a stream of income from various sources like bank fixed deposits, small savings deposits of various kinds like postal MIS or senior citizen savings scheme or rental income. In the beginning when you start utilizing these funds, you might have a surplus, but as time goes by, inflation will start affecting your income stream.

These fixed income avenues might not be able to provide all that you need. It is then that you can dip into your equity/balanced mutual fund corpus. 

These would be the funds that you invested at the beginning or your fund allocation and have kept them invested for a long period of time. When you feel the need to augment your income, you can use facilities like systematic withdrawal plan (SWP) from these funds.

Depending on the initial corpus, you can use funds from this income stream for several years, without having to dip into your principal.


As per current taxation rules investments in equity oriented mutual funds will be exempt from long capital gains tax if the units are held for more than 12 months.

Short term capital gains on sale of mutual fund units will be liable to be paid based on your personal  tax slab. So this saves you from tax on you long term holding which you are anyway going to tap after a few years only.

In debt mutual funds the current tax laws charge 28.325 percent on the dividend that is paid out to you. If you hold the units in growth option for more than 12 months, you are liable to long term capital gains tax the rate of which is 10 percent or 20 percent with indexation whichever is lower.

Hence this saves you tax as compared to interest earned from other taxable fixed income instruments like bank fixed deposit’s on which you pay tax as per your personal tax slab. This again will be beneficial if you fall in the highest tax slab.

What after You?

Financial assets are usually easier to bequeath as compared to physical assets like land/property/gold/artefacts etc. The ownership is clear and holdings are mostly in electronic form.

It is advisable to hold the units in two names so in case the spouse or family wants to continue holding the investments after you, there can be a simple process of transmission whereby the second holder becomes the first holder of the units.

In any case, even if you are holding your investments in single name, ensure that nominations are in place.

The AMC’s will release the funds to the nominees if all paperwork is in order.  The nominee should ideally be the same person to whom you bequeath these funds as per your will. It simplifies things for the family.

In conclusion, you can use mutual funds to the hilt to create a simple and tension free financial life.

The author is a member of The Financial Planners’ Guild, India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.

first published: Sep 27, 2013 04:30 pm

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