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Query Corner

Print Edition: July 2011

Investing

I have invested in eight funds over the past four years, of which four are not performing. Portfolio: DSP TiGER, Tata Indo-Global Infra, Sundaram Capex, ICICI Pru Infra, Birla Midcap, Sundaram Select Focus, HDFC Top 200, Reliance RSF (Debt). All SIPs have a 8-10 year investment horizon. What should I do to rebalance the portfolio? - Kartika K, e-mail
You can stay invested in DSP TIGER, ICICI Pru and HDFC Top 200, but consider exiting Tata Indo Global Infra as it has not been performing for some time. Since you already have two funds from the infra space, you can look at a fund from the diversified space, say multicap funds. BSL Midcap Fund and Sundaram Select Focus have also not been performing for some time. Hence, you can consider investing in better performing funds in their respective categories. Finally, consider replacing RSF with a better performing income fund.

What is the difference between an index fund and ETFs as many global and Indian fund houses have been recommending the former? -S.S. Gaonkar, e-mail
The fundamental difference between an index fund and an exchange-traded fund (ETF) is that the former can be bought and sold like any other mutual fund, while ETFs are traded on stock exchanges. Another major difference between the two categories is that trading in ETFs requires a demat account, which is not the case with index funds. As far as expenses are concerned, for an ETF, a brokerage fee will be charged on the buy and sell transactions, while for index funds there will be an annual expense ratio and an exit load.

I am newbie investor. I can invest Rs 30,000 per year for up to ten years. I have two children, aged eight and two. I am 43 years old and my wife is 39. What do you suggest? -Kapil Mehta, New Delhi
You can consider investing into two funds as Rs 30,000 a year for the next ten years means that you can invest up to Rs 2,500 every month for the entire time period. You can allocate the portfolio between a large-cap fund such as ICICI Pru Focused Bluechip Fund and a midcap fund, say HDFC Midcap Opportunities Fund. Both funds are the best performers in their respective categories. We suggest that you keep a track of these two funds to see if they continue to maintain a consistent performance and rebalance when required.

Loans

I want to avail a car loan with fixed-cum-floating interest regime. How beneficial is this option as compared to pure fixed or pure floating interest rate schemes? -Mahesh Jat, e-mail
Fixed-cum-floating rate of interest is more beneficial when interest rates keep changing. If the interest rates are high, you can save through the floating component, which is not possible in pure fixed rate. Similarly, when the interest rates are low, you can save through the fixed portion of the regime.

When interest rates are volatile, it is better to go for a combination of fixed and floating to be on the safe side and gain in both situations. Keeping in mind the current market scenario, it will better for you to go for the fixed rate of interest as interest rates are expected to rise in near future.

Can I covert my existing loan from floating interest rate one to fixed interest rate loan? What will it cost me? -Rupal Sharma, Mumbai
Yes, you can do that and the bank will charge an additional fee for it. This can be done at any time during the tenure of the loan. While converting your interest rate from one regime to another, you should keep in mind the future scenario and broad future expectations. In case rates are likely to rise in future, you should get your floating rate converted into fixed rate and vice-versa.

I want my loan to be taken out by a different bank. I have been given tax rebates for paying back the loan. Will my wife also get tax rebates after the transfer if the rest of the installments are paid by her from then on? -Anand Singh Jhala, Ahemadabad
If your wife will be the one paying off the loan she will be getting a tax rebate for the maximum permissible limit.

I just joined a job and am still in my probationary period. Am I eligible to get a home loan if? -Ajay Singh, Hoshiyarpur
Your home loan eligibility will depend upon your company and profile, and whether this is your first job. Generally, banks have fixed criteria of at least two years of minimum work experience and six months in the current job. But, the final decision lies with the bank and it can consider you for loan, depending on the policy of bank.

I have been working in a company for over six months now. Am I eligible to become a co-borrower with my father and increase the amount we plan to take as loan? -Priya Sharma, Gurgaon
Yes, you are eligible to do so. Also, if you do become a co-borrower with your father, the bank might consider a joint loan with a longer tenure. More importantly, if your father is nearing retirement, you will still be able to get a joint loan as even if your father crosses 65, the loan can continue.

I have crossed 50 years of age. Can I get home loan for tenure of more than 15 years? -Barkat Lal, Jodhpur
Generally, banks want to you to be below 66 years of age at the time of maturity of the loan. This is to ensure that they can have an assurance of complete repayment before an individual retires.

Renu Pothen, Research Manager, Fundsupermart.com India, has tackled financial planning issues and Satkam Divya, Business Head, Rupeetalk.com has answered queries on loans. Log on to www.moneytoday.in to submit your questions.

HDFC Managing Director Renu Karnad
Home Loan

I am planning to buy a second home, for which I will be taking another loan. My repayment capacity might not be enough to service both loans. Do I need to disclose my earlier loan to my new lender with whom I am negotiating the loan for the new property? What are the consequences if I do not disclose the previous loan? -Shreyas Tirunagiri, e-mail
It is important that you disclose all your financial transactions to the new lender because there is every chance that the new lender will get to know your financial commitments from credit bureaus. Further your bank statement will reflect all payments made towards any loans. It is always advisable to be honest and transparent while availing loans as any act of non-disclosure may result in your loan getting rejected. Moreover, the idea of planning to avail of another loan, where your are sure that your repayment capacity is not enough, would certainly not be financially prudent.

I have an ongoing home loan for which I pay an EMI of Rs 18,000. Due to some unforeseen circumstances I might not be able to service my loan for a few months. Is there a way to keep the EMIs on hold for some time? What are the formalities that I should go through? Should I inform my lender? -Sam Paul, Mumbai
There is no facility to hold EMI payments and hence the borrowers should get in touch with the lender to discuss the situation rather than default on the EMI payments.

Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.

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