Investment in small-cap funds should not exceed 20% of the total investment portfolio

Kumar Devi

Reply to Sanjeev Bajaj, Joint Chairman and Managing Director, Bajaj Capital:

You can start investing in small-cap funds through a Systematic Investment Plan (SIP), provided you have mutual fund SIPs running in large-cap and mid-cap fund schemes. Also, note that your total investment in small-cap funds should not exceed 20% of your total portfolio.

There are more than 7,000 listed companies in our country. The top 100 are counted as large-cap companies, the next 150 as mid-cap companies and the rest are classified as small-cap companies. Small-cap funds invest in carefully selected companies from a complete list of over 6,000 companies, excluding the top 250.

The average return for the small-cap category since inception has been around 18% per annum. But please note that past returns are not indicative of future returns.

The top three small-cap fund schemes in terms of the size of the fund being managed are Nippon India Small Cap Fund, HDFC Small Cap Fund and SBI Small Cap Fund.

Also, note that the sheer size of any fund scheme does not mean that it is recommended for investment.

Q. I have invested ₹5 lakh in floating rate savings bonds. I want to know whether I am allowed to withdraw the amount before the lock-in of seven years. If yes, what are the rules?

Ritesh

Investments in floating rate savings bonds are made for a tenure of seven years. However, if you want to redeem your bonds before maturity, the rules are quite stringent:

Note that no premature withdrawal is allowed for the first four years.

In the 5th year of investment, you can request for premature withdrawal, provided you are 80 years of age or above. The entire investment will be refunded on the principal amount without any penalty.

Similarly, in the sixth year, if you are 70 years and above, you will be allowed to make a pre-mature refund.

And in the 7th year of investment i.e. after the expiry of 6 years from the original date of investment, you can withdraw your money provided your age is 60 years or above.

As already mentioned, there is no penalty on the principal amount in case of premature withdrawal. However, the interest payment has been reduced to 50% for the period of last six months prior to the date of withdrawal.

Also, note that these bonds are non-transferrable and are not traded on any stock exchange.

(Please send questions and thoughts to minmoney@livemint.com)