Have your investments in mutual funds, stocks, and various unit linked insurance plans come down by half? What should you do in such a situation? Should you sell all your investments or buy more?
What's the right investment strategy now?
In a chat with Get Ahead readers on December 17, financial planning expert Vetapalem Sridhar answered these and several other queries related to mutual fund investments and financial planning.
For those of you who missed the chat, here is the transcript.
vijay asked, . I have invested around 5 lac in a diversified equity protfolio. Now it has reduced by a great extent. Should I make use of the current market condition and invest more or should look for safer options. What timeline do u see for the market to reach 20K again.
Vetapalem Sridhar answers, Hi Vijay, investment should not happen only for the reason of averaging out ur cost of purchase. Assume for a moment that u had not invested in the stocks that u hold and hence are not sitting on a loss. In this state what would be ur decision? U have to evaluate ur current state and look at wat type of horizon and returns u expect by investing the surplus money u have now. If the money can be invested with a 5 plus yrs horizon, then equities maybe a better option. If ur horizon is not long, then a bank FD maybe a more suitable option. It would be a while before markets reclaim their previous highs.
vss asked, When Equity market is falling then sell and again Buy so that no. of shares increases in basket. Is this right strategy!
Vetapalem Sridhar answers, Hi! This is nothing but trading. It is a very difficult task to do. To do this u will have to spend full time in the mkt. It is better to invest money at lower levels with a long term horizon. A more easier way is to do a SIP into mutual funds. Even if u wish to try ur strategy do not put more than 10% of ur investment in that strategy.
L asked, Hi Sridhar, What are the different types of etfs'? If you suggest the same, where should i invest?
Vetapalem Sridhar answers, Hi! ETFs are Exchange Traded Funds. There are a number of different ETFs viz. Gold ETF and various Equity ETFs. Under equity ETFs there r some which represent various Indices like Nifty, Bankex, etc. The cost in ETFs is lower and they can be bought and sold in real time in the mkt unlike Mutual Funds. Investment stratgey would depend on ur need.
kbk asked, Which are the safest asset classes which would give an annual return of 15%?
Vetapalem Sridhar answers, The safest asset class is Govt Securities or Govt Bonds. There is a risk free return which is assured by these investment options. Any return over and above this has a certain amount of risk associated with it. 15% annualised return is possible thro investing into equities with a 5-7 yrs horizon. U can consider investing into diversified equity Mutual Fund like HDFC Growth, Reliance Vision, Sundaram Select Focus, etc.
biru asked, Hi, I am planning to invest in KVP post office every month until my retirement. Also after the maturity of the KVP will reinvest. Could you please tell me whether this will be enough as good as any pension plans? Or still do I need to do some pension plan? Which is having the more priority
Vetapalem Sridhar answers, Dear Biru, neither is a gud strategy. For u to meet ur objectives in life it is imp for u to work on creating an overall plan/ strategy which would guide u in ur investing. A sound plan would enable u to decide on a suitable asset allocation plan which would enable u to build enough funds to meet ur objectives in life. A mix of Equity, Debt and other options should help u in meeting ur future needs.
kedar asked, i have invested about 1 lac in UTI, Sundaram BNP Paribas & Reliance MFs. Now the value is considerably low. what to do next as i have not informed the same to my family too. please help
Vetapalem Sridhar answers, Dear Kedar, I would suggest u to remain invested with a further 4-5 yrs horizon. Over this horizon u should make reasonable return over ur invested amt. I hope that u r not investing money borrowed from ur family without informing them. Honesty is the best policy. It is best to tell them that u have invested into equities with a long term horizon and that in the short run the value of ur investment has gone down. Do NOT SELL now. Remain invested.
MK asked, Hi, i'm investing in MF and Stock market. Is it safe for long term.
Vetapalem Sridhar answers, Hi, as the tenure of ur investment horizon on equity investment increases, the Risk in equity investing decreases (provided u invest in gud quality companies). So if u have a 5-7 yrs horizon there is a very strong probability that u would make decent returns. Plz read thro the following link to understand why investing in equity is suggested for long term. Stock & long term investing.
homeloan asked, HI Sridhar, I have a home loan and a top up at ROI of 13% and 14.75% from HSBC. both together would add upto 1600000 outstanding principal. I would like to switch the home loans to some other bank preferably nationalised bank. Can I tranfer both the loans to one single loan? Is it good to transfer to nationalised bank? and should I wait for some more time or should I do it right away?
Vetapalem Sridhar answers, It does make sense for u to switch over ur housing loan to a PSU bank, as the interest rates are far lower. You should be able to get a rate of 10% or below it. There would be some cost on transfering the loan. I dont think that u can get both ur loans transfered to a single loan. U can talk to the banks and find out. U can start enquiring about the transfer of the loan immediately. Talk to various banks and find out the most suitable option.
manishmed asked, Hi, I am 31 years old. both me and my wife are working. monthly income 70000. expenses 40000. one daughter of 3 years age. Want to know how much insurance is required and which are the best saving options for my daughters education and marriage. If you can also tell me what to do of monthly 30000 savings. Thanks in advance
Vetapalem Sridhar answers, Dear Manish, Life Insurance is to cover risk (in financial terms only). Hence if a person dies and there r people dependant on him/her (in financial terms) then they will be put into financial discomfort. Hence the role of insurance should be limited to the extent of this financial discomfort. It would include all existing liabilities and future living cost of dependants (minus current assets, future earning potential of any other earning member). U will have to work out how much cover u need based on the above factors. Ur savings ratio is gud. Invest the savings into a suitable mix of debt and equity investments. A gud option is to invest into equity Mutual Funds with a 10-15 yrs horizon. To invest for ur daughter plz read thro the following link. Investing for children A Slide Show, click NEXT to read thro.
nikhil asked, i wanted to know safest tax saving tool, with good returns/
Vetapalem Sridhar answers, Hi Nikhil, If u r looking at safe options for tax saving the PPF and Tax Savings Bank FDs r gud options. If u r ready for some risk with a potential for return then u can look at ELSS Mutual Funds. U can look at HDFC Taxsaver and Sundaram Taxsaver as options.
jay2005 asked, What could be the possible upside on sensex in short term (6 months).
Vetapalem Sridhar answers, Hi Jay! It is not possible to predict with certainty how mkts would move in 6 mths or for that matter in 1 yrs time. It seems that mkts may remain volatile for some time to come. I would suggest u to have a 4-5 yrs horizon. Over this horizon u make make reasonable return over ur invested amt.
pc asked, should i continue to invest in my SIPs...or stop the payments in these conditions.
Vetapalem Sridhar answers, Hi, U have patiently invested thro a period when the mkts peaked, i.e. at higher levels in the mkt. Now when the mkts have fallen substantially and are available at lower prices u r thinking whether to continue or no. The idea of a SIP is that u invest at higher and lower levels thereby ur average cost of purchase is brought down. If u stop now ur cost of purchase remains high and it would take a very long time for u to make returns on ur investment. It is best to continue investing. Mkts may remain down for some time to come. Have a 5 yrs horizon for ur investments.
Anu asked, Hello, Is this the right time to opt for home loan or would you suggest to wait for some more time?
Vetapalem Sridhar answers, Hi Anu, Loan rates r expected to come down further during the coming months. This is a gud time to start looking for a porperty and purchase it if u find a gud deal. Take up a floating rate loan at this stage. If rate fall further, ur loan rates too will get adjusted.
kalita asked, I want to purchase independent house at Nizampet village in Hyderabad ,should I wait for price correction.
Vetapalem Sridhar answers, Dear Kalita, someime back there was a report made by Goldman that Indian real estate sector may correct by a further 30% from current levels during the coming months. The extent of correction would vary from area to area. I would suggest that u can start looking for a property from now, but do not finalise it. As housing loan rates r going down, it is difficult to say how much further the real estate sector will correct. Be open to the idea of a resale property as u may find more attractives deals. Housing loan rates r expected to come down futher over time.
abhi asked, Hello Sridhar, i want to start investing in Mutual Fund for atleast 5 to 8 years through SIP ...is it right time to do so
Vetapalem Sridhar answers, Dear Abhi, u can go ahead and start ur SIP. Timing should not matter for u as ur horizon of investing is long term. U can look at options like HDFC Growth, Sundaram Select Focus, DSPML Top 100.
csdsfs asked, Hi,i'm planing to invest 1 Lac in mutual funds and LIC insurance policy for 10 yr. I have divided amount as 50% in mutual funds and 50% in LIC...do u think this is best option
Vetapalem Sridhar answers, It may be a better idea to take up a TERM Cover for ur insurance needs and invest the remaining money wisely. With a 10 yrs horizon equity investments would be a better choice.
ParthaC asked, Dear Sridhar, I am 34 years old, unmarried, salaried person with a target to invest 109500 PA. so that my portfolio covers maximum of EQUITY, DEBT as well as INSURANCE ( Health & Protection) with an added advantage of 80C or Tax Saving. I have started ELSS SIP of 4000/month (HDFC LT Advantage, Principal Personal Tax Saver & DSP ML Tax Saver of Rs. 1000, Sundaram BNP Tax Saver & SBI Magnum Tax Gain of Rs. 500 per month), Jeevan Saral from LIC and paying premium of Rs. 48000, Pure Term Plan of Rs. 10,000,00 with premium of Rs. 6000, and invested in other mutual fund as Reliance Vision-1000, HDFC Top 200-1000, Sundaram Select Focus-1000 and SBI Magnum Contra of Rs. 500 per month. Pls advice, If my portfolio is balanced
Vetapalem Sridhar answers, U hv taken a lot of effort to build up ur investment portf. U can simplify ur investment to a gr8 extent. U just need 1 or at max 2 ELSS funds to cover ur tax investments. So many funds r not needed. U can stop LIC Jeevan Saral and instead invest this money more wisely. The regular funds that u hold r gud.
Ravi asked, Sir I have invested around 22 lacs in the stock market. My portfolio currently stands at Rs 9 lacs. I have some good stocks like sobha developers, HCC, Tata motors, Indian hotels, hotel leela, unitech and some not so good like petronet lng, arvind mills, alok textiles etc. Tell me what should i do so that i recover my portfolio's lost value.
Vetapalem Sridhar answers, Dear Ravi, if u have faith in the companies that u have invested then U should wait. Over time the mkts will recover and ur stocks too would go up. It is best to be invested in Bluechip stocks.
aruna asked, Hello Sridhar, Invested in JM Basic MF in Jan 08 and it is now down by 70%. Is it wise to invest a little more in it now to cover the losses to some extent? Please suggest.Thanks
Vetapalem Sridhar answers, Dear Aruna, at this stage i would suggest that all further investments should happen into bluechip stocks or Mutual Funds investing into large cap stocks. It is better to invest into Funds like HDFC grwoth, Reliance vision, Sundaram Select Focus, DSPML Top 100 etc... Averaging as a strategy is not a gud idea.
vijay24 asked, sir, i am in need of Rs 5 lac loan to purchase a land near my home town and banks are not allowimg me for home loan, should i take a personal loan. intrest rate for personal loan can come down in future.
Vetapalem Sridhar answers, Taking up a personal loan may not be such a gud idea. The rates of personal loan r very steep currently. If possible it would make sense to borrow money from parents. Alternatively postpone the decision to buy land.
miraj asked, Hi, I've been investing Rs 5000 each in Reliance Vision fund and HDFC Equity Fund via SIP for the past two years. Should I continue investing? Miraj
Vetapalem Sridhar answers, Dear Miraj, it does not make sense to stop SIPs at this stage as mkts have come down and SIPs at this time will enable u to invest money into Mkts at lower levels.
nk asked, hi,i am 28 year old and newly married. i have not made investment till now (except LIC policy). can you guide me how should i plan my wealth's health? my monthly income is 30000. and expenses are nearly 15000.
Vetapalem Sridhar answers, Hi, First take up an adequate TERM Insurance cover. Once this is in place, u can invest money to take benefit of tax saving u/s 80C. For this u can consider among options from ELSS MFs, Tax Saving Bank FDs, PPF etc. Most importantly spend time in learing about investing and various investment options. During the next yr or so also work on building a Financial Plan which would help u meet ur future objectives in life.
DeepakAg asked, I have 10 Lacs in my PPF and next year 15 years is going to complete....can i withdraw 5-6 lacs for my personal purpose and rest amount will be there..n renew that PPF account for next 5 years...can I do that?
Vetapalem Sridhar answers, Yes u can do that.
poj asked, hello, my wife wants a retirement plan for her can you suggest any one of them thank you in advance
Vetapalem Sridhar answers, If there is still a lot of time left for ur retirement, then it would make sense to do a SIP on ur Wife's name into a diversiified equity mutual fund. I would not suggest an insurance based investment. There has to be discipline in investing and using the money for retirement as there is no compulsion in a Mutual Fund. Over the long term u should be able to build higher funds thro this method.
SLH asked, Are FMP and liquid funds safe in the current market situation for shor term investments?
Vetapalem Sridhar answers, At this stage Liquid Funds r very safe. FMPs investing into gud quality papers too r safe. Carefully study the indicative portf before investing into FMPs.
zew asked, My LIC agent suggests combination of plan which require 15K per month premium for 8yrs. Which in turn start paying me from 16th yr 55k per annum and 10% increase every year. After 25th yr I will get 6lac per annum. Is it good to go with?
Vetapalem Sridhar answers, It is better to invest this money wisely urself. The returns tht is being suggested is quite less. U would be better off doing a SIP into diverisified equity MFs and withdrawing money as per the schedule mentioned by ur agent. U would end up with more money in the end thro this method.
Zeal asked, Hello Sir, I have taken Metlife ULIP of Rs.35000 last year. Now I have left with only Rs. 11000. I had opted multiplier. By Feb 2009, I need to pay next premium. Is there any way to make up the last year loss? Please suggest me. Thanks in advance.
Vetapalem Sridhar answers, It is better to continue to invest. U cannot do anything about the drop in investment value, but remain invested for the full tenure of the ULIP (not just 3 yrs).
Vetapalem Sridhar says, Thats all for now friends! Will catch up soon to answer ur queries....
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.