You are young, into your first job, earning a decent salary but don't know how to go about investing for you and your family?
Should you put your money into shares, PPF or mutual funds to get good returns by the time you are ready for retirement? Which are the best mutual fund schemes that can help you attain this goal in the long ter? What precautions should you take while investing in mutual funds and how to decide on a good mutual fund portfolio?
Also, are you going overboard when it comes to spending money? What should you do to get out of this habit and start saving for your retirement?
In a chat with Get Ahead readers on February 6, 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: Stocks or mutual funds? Where to invest now?
Ricky asked, Good After Noon Sridhar, My age is 32 and have 2 daughters. I have a long term investment plan say 10 -12 yrs. I intend to use these investments for their education and marriage. Iam investing in mutual funds thru SIPs every month. Please let me know if i will have to change my portfolio. 1000 in Reliance regular savings equity fund, 1500 in HDFC growth, 1000 in ICICI PRU INFRA, 1000 in SBI Magnum equity,1000 in Magnum contra and 1000 in Standard Chartered premier equity. I have invested 20000 in Principal personal tax saver and 20000 in sundaram paribas tax saver. I will keep investing 40000 every year into these ELSS funds. Please suggest. I have 300 Sqr Yrds in out skirts of Hyderabad and a flat near to hitech city.
Vetapalem Sridhar answers, Hi Ricky, Ur MF portf seems to be gud. Do not increase any more funds. Continue investing in the above funds itself. If u continue investing in the same way, assuming a growth of 15% p.a. u should roughly end up with around 40L in 12 yrs time. In current terms the purchasing power should roungly be around 20L assuming a 6% rate of inflation. Have not taken value of plot in the above. So probably it may be sufficient to meet ur objectives.
vivek asked, sir my age is 25. i wnt to start saving for my future..please tell me which is the best way for saving either mutual fund, or life isnurance or any other...i dont have any idea about saving and for tax planning..please guide me..which will be better for me?
Vetapalem Sridhar answers, Dear Vivek, It is gud that u r aware that u do not know much about saving and investing. So initially the focus should be on learning about saving and investing, as this knowledge would help u throughout ur life.
About saving, maintain a diary of income and expenses, as that u r aware of how ur money is coming and going. This will help u to focus on how to increase ur savings. Once u have savings the next step is investment. Here again a learning attitude is essential. All money that u plan to use within 3 yrs time should be put into safe assets.
If u fall in the tax slab then it makes sense to invest into ELSS Mutual Funds. Any money that u r sure that u will not need for at least 5 yrs period should be invested into Equities (preferably thro Mutual Funds). Also if there r liabilities or dependants on ur income u should take up an adequate TERM Insurance cover.
FO asked, What amount of money should one at the age of 45 save up so as to attain Financial Freedom and retire, so as to have a modest life style?
Vetapalem Sridhar answers, Enough money that would be able to support ur lifestyle for the rest of ur life. So the amt would depend on a number of factors like ur annual cost of living, rate of inflation, life expectancy, no. of dependants, Medical problems, etc.
Moiz asked, My take home is 18,000. And i am not able to save anything. That too every month I have to borrow money from friends during month ends. Suggest me some starting steps to save money... Thank you..
Vetapalem Sridhar answers, Hi Moiz. Follow the following tips for saving money:
1. Understand ur income and expenses. keep a written record of ur expenses. review it at the end of each month. look at expenses that u could have avoided. In future avoid such expenses.
2. Look at ur lifestyle habits. if u go to a multipex every week and spend money, cut down on number of visits and try to find activities that cost lesser money and which r more adventurous.
3. keep a tab on ur mobile bill. select a plan that works out cheapest for ur profile of usage.
4. Get into a SIP mutual fund which ensures discipline as far as saving is concerned.
5. If u have a credit card then cut it into 2 pieces as u should not fall into the habit of using it. Use a Debit Card instead.
kan asked, Age 38, 2 sons aged 8 and 3. Property investment worth 100L. Stocks 7.5L, MF 2.0L. Kids have education policy. Insurance worth 20L. Plan to invest further around 25,000 p.m via SIP. Selected funds include HDFC growth, DWS Investment opportunity, Kotak Opportunities. Sundaram Growth and Reliance growth 5K each. Plan to retire by 50. Will this be sufficient or do I need to save more in SIP?
Vetapalem Sridhar answers, U have not mentioned details about ur current cost of living and the lifestyle u wish to maintain in future. So would not be able to say if the current planning is on track. The portf seems gud. Would suggest that u replace Reliance Growth by JM Emerging Leaders Fund.
vik asked, which mutual fund will give good return in 3 years. I am young and can afford to take the risk. In general investing in share market would give better returns tham nutual funds or not?
Vetapalem Sridhar answers, Just taking higher risks does not ensure that you make higher returns. We need to be able to withstand or manage the higher risk so as to make higher returns. With a 3 yr horizon, u would not have the ideal capacity to bear the risk of volatility in equities. There is definitely more potential to earn higher returns thro direct investing into stock mkt, but most people tend to underperform the average Mutual Funds over longer horizons. There is no sure way of knowing in which catergory u fall unless u r exposed to both forms of investing.
bhola asked, I am (30yr old) planning to invest in HDFC Equity, Franklin PrimaPlus, Franklin FlexiCap, Rel Vision, DSPML Equity, Fidelity Equity funds through SIPs of Rs 5000/- each for 3 years. What is your view about my portfolio. Is there any need to change any fund? Do I need to add any mid cap, thematic funds? For debt instruments I am already investing in PPF, EPF, Bank FD.
Vetapalem Sridhar answers, U should pick one among HDFC Equity and Reliance Vision, one among Franklin Prima Plus and Flexicap. U should add a Midcap fund like SBI Midcap to the portf.
Investor asked, Hi Sridhar, If we invest 50,000 now in a 10 years closed ended ELSS fund, what do you think would be the corpus at th end of 10 years? Also please suggest, among LIC's Jeevan Plus and Money Plus, which do you think is better? Thanks.
Vetapalem Sridhar answers, Hi! If the fund is well managed then a return of around 20% annualised over a 10 yr horizon is possible. In such a case the the money should grow to 3L. If u hv a 10 yr horizon then none of the LIC policies mentioned by u would be the best option if returns is ur objective. It would make more sense to invest into Mutual Funds.
sunny asked, I want to switch over from Reliance Equity Advantage. I have both Reliance Growth and Reliance Vision. Which would be a better switching option? Also, I wanted to switch from SBI Magnum Global to SBI magnum Multiplier Plus, Sundaram Select Mid cap to Sundaram Select Focus and Franklin High Growth Companies to Franklin Prima Plus. Please comment.
Vetapalem Sridhar answers, Considering the other switches, Reliance Vision would suit the new portf more. It is never advisable to change a portf in one shot. U should change around 1 to 2 funds each yr. This ensures that non performers r weeded out periodically and better funds r included into the portf. It keeps the portf fresh and dynamic. I would second the choices made by u.
ravi asked, which r the best mutual funds for i am investing for the first time?
Vetapalem Sridhar answers, Dear Ravi, it is not possible to know before hand which will be the best performing funds in future. It it were possible everyone could just invest in it and earn the best returns, putting all other funds out of business. This is the reason that we tend to pick more than one fund so that we can diversify. It is best to pick between 4-6 funds and keep investing in them regularly. U can look at funds like HDFC Growth, Sudaram Growth, SBI Midcap, Reliance Vision, Franklin Prima Plus which have a gud track record.
narayani asked, Hi. I am 26 years old and has no dependents as of now. Can save upto 15K PM. Can you please suggest some good MFs for same? Ones I shortlisted are std cht prem eq., rel vision. Want to have 3-4 MFs.
Vetapalem Sridhar answers, Hi Narayani, in addition to them u can look at Sundaram Select Focus, SBI Midcap, HDFC Growth.
idle investor asked, hi sridhar, can you tell me which is the best term insurance plan in market today? I am at 30 now and would like to take an insurance policy for 25 yrs for 70 lakhs.
Vetapalem Sridhar answers, Hi, I would suggest that u get a quote on the following: Reliance Term Plan, SBI Shield, ICICI Lifegaurd WROP, Metlife.
Generally they have the most competitive quotes as far as Term Insurance is concerned. U can find info on most of them thro their websites where an online premium calculator is available. U may not need a cover for 25 yrs as u may have accumulated substantial financial resources a lot before that if u invest wisely.
Part II: Stocks or mutual funds? Where to invest now?
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.