The stock markets are up one day and down the next day. These are volatile times and investors who are planning for their future are wondering if they should invest directly in stocks or take the mutual fund route?
What should be the mix of your investments in assets like stocks, mutual funds and insurance policies? If you plan wisely would it be possible for you to retire at the age of 40 or 50?
What kind of mutual funds should you add to or remove from your portfolio?
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 I: Mutual funds you can hold for the long term
Vetapalem Sridhar asked, Is ELSS better than ULIP? Plz advise...
Vetapalem Sridhar answers, No product is good or bad. It purely depends on what is ur need or wat is it that u r looking for. Purely from a return point of view, a ELSS fund may be a better option. But there r a lot of features to a ULIP which have a different role to play as far as a investor is concerned.
arushi asked, me and my husband are in early 30s and combined income is close to 1 lakh pm..how much do u suggest saving?
Vetapalem Sridhar answers, Dear Arushi, U should save as much as possible, as that would enable u to accumulate enough financial resuorces faster in life and bring u to a state of Financial Freedom, i.e. u would no longer need to work for money. The financial resources accumulated would be sufficient to support ur lifestyle throughout ur life. This would ensure that u would have a lot of free time and resources which would enable u to follow ur dreams in life.
Nishant asked, Dear Sir, I am a 24 year old professional working for the past 1.5 years. Currently, I take home a salary of Rs 60,000 pm and have no financial liabilities as of now. My regular monthly expenses are Rs. 20,000. I currently hold Rs. 1,50,000 in equity (RIL, TISCO, NAGARJUNA CON, SANGHVI MOVERS) and Rs. 2,50,000 in equity mutual funds. I invest about Rs. 10,000 in equity mutual funds and Rs. 15,000 in equity every month and will increase this amount as my earnings increase. I have no allocation in debt and debt instruments as of now. I also expect my future earnings to far outpace inflation. My goal is to retire from active work at the age of 40. I would like to build a corpus of Rs. 5,00,00,000 by then. Kindly suggest how I can achieve that considering my investment approach?
Vetapalem Sridhar answers, Hi Nishant, U seem to be managing ur finances in a smart way. Do not build a portf of more than 5-6 Mutual Funds. U r currenly investing around 3L p.a. into equities. If u increase this amount by 10% each yr till ur age 40 yrs, then assuming a 14% annualised return u can accumulate around 4 Cr by then. This amount should help u become financially free.
kesarirs asked, Hello sir, I'm a self employed professional aged 33 yrs -- married & having one child aged 3 yrs. My total earnings at present are 25000 pm appx. My initial savings are: 30k with post office rd, 55k in bank fd, 45k in nsc, 130k in diff mutual funds. I have a combination of LIC policies wherein total premium is 44k & total sum assured is 20 lac. I also have a mediclaim for myself & family for 3 lac(1 lac each). My current monthly investments are: 3000 in reliance tax saver, 2000 in franklin India opportunities, 1000 in FT India balanced fund, 2000 in post off rd. My current monthly expenditure is 13k appx. I have following long term goals: higher education for my child after 18 yrs & her marriage after 23 yrs which shall cost me roughly 10 lac & 20 lac respectively. I want to know whether I can attain these goals & continue my current life style once I stop working at the age of 55 considering my present investment mix! Please guide.
Vetapalem Sridhar answers, Dear Kesari, if u continue investing and saving in the same fashion, then by the age of 50 u should roughly be able to accumulate around 1.5 Cr. This amount should be sufficient to take care of ur daughter's needs as well as support ur lifestyle of 15K p.m. inflation adjusted till ur age 85 yrs. So u can definitely look at quitting working for money at ur age 55 yrs.
sunil nambiar asked, can u tell me the best way to save for retirment of about 80L?
Vetapalem Sridhar answers, Dear Sunil, let me give u an approach u can evaluate. Keep aside the expenses of around the next 5 yrs in a safe place like a FD or a Mutual Fund Liquid Plan. From here u can do a Systematic Withdrawal Plan which would ensure that for the next 5 yrs u get a fixed mthly income into ur bank. After this u can invest around a further 3 yrs worth of requirement into a long term debt product where u can get an attractive post tax return. U can look at Fixed Maturity Plans of Mutual Funds as an option. Of the remaining money a major chunk should go into equity oriented investments. Here too a well balanced portf should be built.
sushruth asked, Hi Sridhar, I have 3 lakhs with me now. I need to buy a house in bangalore with a loan. But this amount would not be sufficient now. Pls let me knw wht I can do with this money so that I add up another good amount of money so that I can buy a house? Thanks.
Vetapalem Sridhar answers, It does not make sense to invest this money into equities as in the short run there is risk of volatility. U would need to accumulate further amount thro ur income from work. Estimate by when u can collect the required amt. If there is more than a yr then would suggest that u put this money into a 13 or 15 month FMP (Mutual Fund) product so that u can get the advantage of double indexation thereby earning a gud post tax return (around 8.5-9%) on this money.
sharat asked, Hi Sridhar. If I can put aside 10K per month, what is the best way to invest it for good returns? My annual income is 5L p.a.
Vetapalem Sridhar answers, If u can keep it invested for the long term would suggest that u do a SIP into mutual funds. U can pick 2 funds from HDFC Growth, Sundaram Select Midcap, SBI Magnum Equity and JM Emerging Leaders Fund, SBI Magnum Midcap.
RJ asked, Sir, kindly review the portfolio. annual Income - 10 Lakhs Term cover - 60 lakhs Medical insurance for whole family for 2 lakhs Fixed instruments - 3.5 lakhs PPF - started investing 70,000 per year from this year Mutual funds - 4 lakhs (Capital alone) in diversified Equity funds. Current SIPs Franklin India Prima Plus - 4000 Magnum Contra - 4000 Reliance Vision - 4000 DSPML Equity - 4000 Birla Midcap - 4000 Kindly review.
Vetapalem Sridhar answers, Portf seems OK. U seem to be on track.
Oldie asked, hi sir, I am kind of concerned about the rupee's appreciation and the US recession. Since i work in US and i have already about 40Laks in indian MFs through SIP, do you think i should sell all holdings and again reinvest by SIP into the market?
Vetapalem Sridhar answers, Trying to time mkts is not such a gud idea. And being out of equity too may not be such a gud thing if u have a long term horizon. Would suggest that u remain invested and whenever mkts correct take advantage of the falls to pump in more money into equities here. With a 10 yr perspective there is a lot of potential in Indian Companies to perform.
sas asked, Hi, I invest around 15K per month through SIP in following funds. HDCF Equity, Top 200, Prudence, SBI Contra, Global, Franklin India Prima, Reliance Vision, ICICI Tax Gain, Sundaram Select Mid cap. All are Growth option with 10-15 yr timeframe. Is there any modification required? Are there any duplicates? Any possible improvements?
Vetapalem Sridhar answers, Pick one among HDFC Equity and Top 200. Would suggest u to replace Select Midcap, Global and Prima with something like a SBI Midcap or a JM emerging Leaders fund. This would create a gud portf.
gg asked, i am 26 and me and my husband's take home is 90k. i ALONE have a house loan for anther 10 yrs 4 which i pay 22k. we stay in a rented house and pay 10k since we work in diff city. Do u suggest taking anther house on husbands name to avoid tax and paying rent or is it suggestable to invest in SIPs? once we invest in open ended funds like fidelity equity, franklin prima plus is there any way we can increase our investments in these funds?
Vetapalem Sridhar answers, There is no point in going in for a second property just to save tax. If u plan to buy a bigger/better place by selling the existing house, then it would make sense to invest in the new property in joint name by taking a joint loan. If u plan for the above would suggest that u consult a gud CA who would help u minimise ur tax liability thro the above arrangement. U can increase investments into existing funds thro doing addition purchase into them.
saji asked, Hi I am married aged 35 one son aged 4, our combined income is aprox 48000 p.m. I have invested in MF, 12000 in Birla top 100, DSP-Ml equity 25000, Reliance growth 25000, Reliance diversified power SIP 1000, Sundarama Tax Save, SIP,1000, ICICI pru TAx 24000, SBI Magnum Tax SIP 1000, Relaince Equity 12000, HDFC tax saver 25000, Realiane vision fund SIP 2000, Fidelity tax advantage 24000. Kindly advise whether I am investing/ invested in good funds, My investment plan is 10 years.
Vetapalem Sridhar answers, Hi Saji, U have invested in too many funds. Pick just 1 tax fund and continue all further investments for purpos of tax saving into this fund. U can consolidate the remaining into around 4-5. Would suggest u to exit Reliance Equity.
rahul Sanghvi asked, Hello Sir, can you please give 2 names of good Tax saving mutual funds, in which money can be invested at this moment? Thank You
Vetapalem Sridhar answers, Principal Tax Savings Fund, Sundaram Tax Saver and HDFC Tax Saver.
VT asked, Hi Sridhar, I am an NRI working abroad, can you please let me know what options I have to invest for long time future in this un-certainity period? I am 30 years old. Dont have any PF in india. I am looking at getting a fixed income for my future. Can you please tell me the options? Thanks.
Vetapalem Sridhar answers, If u have a long term horizon of investing in India, it makes more sense to invest into equities here. With a 10-15 yr horizon there is a lot of potential for the equity investments to grow. This u can do thro the Mutual Fund route. Once u decide to get a fixed income u can restructure ur investments to suit ur needs then.
Shirley asked, Is this a good time to invest in the stock market, given the turbulence its going thru?
Vetapalem Sridhar answers, Hi Shirley, falls in mkts r always gr8 times to invest into equities. U can get gud quality stock at attractive valuations in such falls. But always have a long term horizon (5 yrs or more) when investing into equities.
Aditya asked, Hi there, I am Aditya-25, my take home is 4 lakhs/year. My expenses are 0! Is putting all the money in stock market advisable? As the rate of interest is better than any other form of investment? Or should i go for Mutual Funds and stocks both?
Vetapalem Sridhar answers, Dear Aditya, it's not not always wise to put all ur money into the same asset. Invest that part of the money which u can keep invested for a period of not less than 5 yrs into equities.
Vetapalem Sridhar says, Have run out of time! Hope to catch up soon to answer some more interesting questions on Financial Planning and Investing.
Part I: Mutual funds you can hold for the long term
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.