Do you aim to invest with an eye on getting decent returns 20 years from now? Or are you investing money for your daughter's marriage/studies etc?
What is the best way to create a good corpus for your future? Should you invest in pension plans, mutual funds or invest in real estate?
How much should you save every month in case you want to have Rs 40 lakhs after 20 years?
In a chat with Get Ahead readers on April 4, financial planning expert Vetapalem Sridhar answered these and several other queries related to mutual fund investments, financial planning and how to achieve financial freedom for you and your family.
For those of you who missed the chat, here is the transcript.
Part II: 'Bank FDs can get you reasonable returns'
JG asked, Dear Sridhar, I have to choose 2 MF from the following for 3-5 yrs horizon: HDFC Equity, HDFC top 200, HDFC Growth, Magnum Contra. I am already investing in Magnum Taxgain, Reliance Vision, Franklin Prima Plus, Tata Infra, Kotak Tax Saver and HDFC Tax Gain.
Vetapalem Sridhar answers, Hi! You already have 6 funds in ur portf. U do not need to have 3 tax funds. Just one or at most two should have done. U can over time consolidate the ELSS funds. U can look at adding a fund like HDFC Growth. The porft otherwise is reasonably OK.
rita asked, Hi Sridhar, what do you think is the best way to save for a person whose salary P/A is 2.5 to 3. Is spending in MF's work for a beginner like me?
Vetapalem Sridhar answers, For ur case probably a Systematic Investment Plan into diversified equity MFs is the most ideal way to save and invest money. Money into MFs would be savings and not 'Spending'. To make money thro equity oriented MFs u need to have a long term investment horizon. In the current scenario a 3-5 yrs horizon is a gud time frame. U can look at funds like HDFC growth, Reliance Vision, JM Emerging Leaders fund, etc.
Balaji asked, Dear Sridhar my name is balaji & i am working in muscat. my query is as an NRI what are options of investment in india available now? how to go for online trading, which is best online trading website?
Vetapalem Sridhar answers, NRIs in India can invest into Equities directly or thro the mutual fund route. For direct equity investing there is a lot of paper work to be done initially. There r a number of online brokers who offer this facility. ICICIDirect, Kotak Securities, etc are known names in this field. But investing thro Mutual Funds would be a more simpler option. u can get in touch with ur bank or any MF advisor in india for the same.
Narayana asked, Hi... Good afternoon. For the year 2008-09 to save tax i want to invest in ELSS funds thru SIP route (5000 PM). i have SBI Magnum Tax Gain, Sundaram Tax Saver or Principal Tax Saver in mind. can you suggest which one is good?
Vetapalem Sridhar answers, All the above funds are gud. Sundaram and Principal would be better options as their fund size has not grown very large. It is not possible to know in advance which funds will be the best performers in future. That is the reason why we build a portfolio of 4-6 funds.
sachin asked, I have purchased a flat by taking housing loan from ICICI, using property as self occupied. I have made early part payment and loan is about to be repaid within next 2 months. Now I want to purchase another flat by taking another housing loan & want to enjoy benefit of Interest & principal payment again. Can I take both benefits for 2nd loan Which property I should show as self occupied & which as deemed to be let out. In deemed to be let out, out of rent how much interest can be claimed as deduction, Can I claim whole interest as deduction even though it goes into negative. Principal payment of 2nd loan can be claimed as deduction under section 80 C or not. In nut shell, I want to take benefit of both interest & principal paid for 2nd loan.
Vetapalem Sridhar answers, U should consult a CA. My View: Housing loan on ur first house would be over. So here u cannot get any benefit in future. On second loan that u take u can get benefit. If u want to take benefit on the whole amt of interest on this loan u will have to show this house as deemed let out. Cause on self occupied property interest upto only 1.5L is allowed. Principal component upto 1L is covered U/s 80C.
werew asked, My age is 31 yrs. what should be the equity/debt component in my life if I can take moderate/higher risk? Right now I have equity/debt ratio is 35/65. I can stay invested for at least 5 yrs.
Vetapalem Sridhar answers, Hi! There is no ideal debt/equity ratio based on age. There are a lot more number of factors that need to be considered to decide on a suitable asset allocation. A simple rule that u can use is: any money that can be invested for a long term, say 5 yrs or more should be invested into equities during ur working years. U can read thro the following link which discusses the importance of asset allocation. Asset Allocation - Secret to Financial Freedom
aa asked, Sir, Following is my portfolio. Is this fine? Sundaram select focus - SIP of Rs.5000 Reliance Vision - SIP of Rs.4000 DSPML Equity - SIP of Rs.4000 Magnum Contra - SIP of Rs.5000 Birla Midcap - 3000 HDFC Prudence - 1500 Templeton india pension fund - 1500.
Vetapalem Sridhar answers, You have gud funds in ur portf. It may be a better idea to invest into debt and equity separately based on ur asset allocation needs rather than go for a balanced fund or a pension fund.
Ajay S asked, My take home is 45K. Can save 15K per month? Have 2 SIPs in Reliance Diversified Power Sector Fund (6K) & HDFC Euity (2K). Kindly suggest what to do with remaining 7K? Is it right to invest now?
Vetapalem Sridhar answers, Dear Ajay, Time (longer horizon of investment) in the market is more important than timing the market. Investing regularly is the best alternative. U can pump in additional amount when there are corrections in the market. Having said that u can add funds like Sundaram SMILE and SBI magnum Equity to ur existing funds.
Mon asked, Hi Sridhar. which one is a better investment method for MFs: one time investment or SIPs? My take home is 30k pm. I can save about 10k out of it.Can you please suggest a good mix of MFs for me? Iam considering 5 years period & my risk apetite is high. Thanx.
Vetapalem Sridhar answers, Method of investing into MFs is more a function of ur circumstances. For a person who is able to save regularly for monthly income SIP is the ideal way to invest into MFs. But for a person whose income flows are irregular, lumpsum investments maybe more suitable. In ur case it seems that a SIP is a more suitable method of investing. U can look at funds like SBI Magnum Equity, HDFC Growth, JM Emerging Leaders Fund, etc.
Saju asked, I have a 6 month old daughter. I want to accumulate a corpus of 40 lakhs, towards her education and marriage. Should i invest via ULIP (HDFC child plan) with premium of 50000 per annum or mutual funds via sip 4150 per month in diversified mutual funds ie (HDFC balanced, top200, or sundaram)? Is it possible to achieve the above within a time frame of 20 years assuming modest returns 15% per annum? Please provide your advice or suggestion.
Vetapalem Sridhar answers, Hi Saju, It is gud to see u planning ahead for ur child. Either of the options are gud. But I feel that Mutual Funds would be a better option in the long run. I would suggest u to start a SIP into HDFC Growth and JM Contra fund with a long term horizon. Plz read thro the following link which would guide u to build wealth for ur child. Investing for children A Slide Show, click NEXT to read thro.
himanshu asked, Hi, Wat's yr take for G or D option? A 20 yr horrizon for SIP of 2k/month each in Rel Growth, Tata infrastructure MF, aim being capital appreciation, thanks!
Vetapalem Sridhar answers, I have always been saying that equity investments are a long term investment option. In such a case u would anyways hold the investment for more than one year. As there is no long term capital gains tax, a growth option would be a better option in the long run. Plz read thro the following link where i have dealt at length on the topic of growth vs dividend option. Dividend Vs Growth.... U can look at HDFC Growth and SBI Midcap as alternatives.
TSRavi asked, Sir, I am 31, married & have a kid of 2.5 yrs. I am paying a housing EMI of INR 11,200 @12.25% interest for my flat. I am currently staying in a rented flat in a different city. My flat is also rented. I don't have any other EMI. I am having a liquid cash of around INR 9.5 lac., which is not invested anywhere, but laying in SB account. My outstanding housing loan amount is INR 10.2 lac. I am planning to buy a car in next couple of months. My query is shall I pay off / pre-close my existing housing loan with the cash that I am having or by putting the balance amount in liquid cash? (Housing loan balance tenure is 262 months).
Vetapalem Sridhar answers, It would make more sense to invest the money now with a 5-7 yrs horizon into equities as mkts are at lower levels. Over this tenure a 15% plus returns is a reasonable expectation. Ur cost of borrowing is 12.25%. On the loan u can get tax benefits too. Hence cost of borrowing would work out lower. As u can generate higher returns thro equity investing, it does make sense not to prepay the loan. Having said that, if u plan to keep the money invested into debt or places like FDs, in such a case it would make sense to prepay the loan instead of investing the money.
anitha asked, Hi sir, I have nearly 1.5 lakh money in hand. Every month i will draw 33,000Rs. Please suggest any plan for short term like 3 to 4 months.
Vetapalem Sridhar answers, Hi Anitha, the best place for short term plan in ur case would be a bank FD of 3 mths. Mutual Funds would not be a suitable option for ur case. To invest into equities where there is potential for higher returns u need to have a long term (5 yrs plus) horizon of investment.
adfgd asked, Hi...I'm 32 married with a 1 yr old daughter. I have 2.5 lacs in diversified MF, 2.5 lacs in blue chip shares, just invested Rs 1 lac into Kotak retirement plan and will invest Rs 1 lac yearly in this for next 28 years, have insurance cover till age 60 from MetLife of Rs 1.5 Cr. I have monthly EMI outgo of Rs 75000 for Home loan + LAP. Annual income is 30 lacs. I want to build max retirement corpus (will retire at age 60) and pre pay my loans at the earliest. I can invest Rs 1 lac per month. Please suggest correct investment avenues.
Vetapalem Sridhar answers, Hi. It seems that u have planned adequately to cover for risk thro a insurance plan. Even though there may be certain products with names pointing to specific objectives (for eg: Retirement Plan), they may not be the best alternatives to meet ur objectives. What u should do is to keep aside enough money into safer options like FDs, to meet any needs that u may forsee in the next 3-5 yrs.The remaining money should be invested (trading in equties is a bad option) with a long term focus 5-7 yrs to create wealth. Mutual Funds should be a more suitable alternative in ur case.
Prasad asked, Dear Sridhar, Which is the best option to invest for pension scheme and getting 20K after 22 years?
Vetapalem Sridhar answers, Hi Prasad. Investing money into places like diversified equity Mutual Funds is the best way to build funds for ur future. When the time comes it is better to design ur pension thro a Systematic Withdrawal from the mutual funds itself. (Best to consult a Specialist for the same). Current Pension funds generally r highly inflexible investment options. Also returns over the long run may not match that given by Mutual Funds.
Part II: 'Bank FDs can get you reasonable returns'
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.