Is there a particular age when you should think about having a financial plan? What are the requirements of making a good financial plan? Is it good to take help of a financial advisor? How to find a good financial advisor?
Also, is this a safe time to start mutual fund SIPs? Which are the best mutual funds you can buy now if you have an investment horizon of 5 years?
In a chat with Get Ahead readers on September 24, 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 unedited transcript.
1975 asked, Sir, I have kid of 1yr i can invest rs. 2000/- p.m for his future so that while he will grow his money will grow and on occassion of higher education he can have good amount of money. how can i be crorepati? and how much should i save money per month for next 15 yrs? please guide i also want to buy home. summaring investment for son 2000/- p.m. EMI home loan can in future Rs. 10000/- p.m. and saving p.m. to be come crorepati in next 15 years. i am investing Rs. 1000/- p.m. in sbi contra, Rs. 1000/- DSP ML tax saving, Rs. 1000/- p.m. each in SBI and kotak Tax Saving and investing Rs. 5000/- p.m. in LIC policies please guide me what should i do in this case
Vetapalem Sridhar answers, at 2008-09-24 15:13:01Hi, Invest the money for ur child's future too into a Mutual Fund. A SIP in a fund like HDFC Growth or Reliance Vision should do. To accumulate 1 Cr in 15 yrs a mthly investment of around 15K into Equity oriented MFs should work (assuming a return of 15% annualised). Real Estate prices r expected to come down further. Sometime during the 1st half of the next calendar should be a gud time to buy. I would suggest that u relook at 5K pm LIC investment. Take up a TERM Plan instead with adequate Insurance cover and invest the money into Mutual Funds. Also ensure that u hv adeqaute funds liquid to take care of any needs during the next 3-4 yrs.
PleaseAnswer asked, What is the tax % on money earned in ESOP. Note that its traded in US market but vested about 2 years back.
Vetapalem Sridhar answers, Hi, the taxation is a little complex for ESOPs. There is a Fringe Benefit Tax and also Capital gains tax that may come into play. A number of factors need to be looked at before deciding on the treatment for each individual case. I would suggest that u meet a CA and work out a solution for ur case.
aasas asked, Hi I need monthly 2000 saving for my child for higher education , so what is the best and safe for long term 20 years time horizon..i need 20 lacs corupus
Vetapalem Sridhar answers, With a 20 yrs time horizon equity is relatively safe and it has the potential to deliver the best returns. Would suggest that u do a SIP into a fund like HDFC Growth or Reliance Vision fund. Also plz read thro the following link to know about the approach tp take to build funds for ur child. //specials.rediff.com/getahead/2007/aug/07sli1.htm Investing for children A Slide Show, click NEXT to read thro.
Nikunj asked, Sir, I am having 1 yr old daughter. I want have Rs 50 Lakhs after 20 yrs for her higher education & marriage etc. Pl advise what amount should be invested monthly to achieve said targets. Pl advise certain child specific schemes.
Vetapalem Sridhar answers, Hi Nikunj, to accumulate 50L in 20 yrs a SIP of 4K p.m. into equity oriented MFs should suffice. Read thro previous answers for approach to invest.
am asked, how much tax do i pay on fmps less than one year
Vetapalem Sridhar answers, U have to pay tax on short term capital gains for a debt fund. So it is 30% tax plus surcharge on profits.
v asked, I have some 20lakhs in my bank account and need some guidence on investing it such a way that it generates more than 1 crore after say 10-15 years. I also have invested 2 lakhs in MF and about 2.2lakhs in direct equities plus some 2lakhs in Fixed deposit. On top, I do have life insurance worth 16 lakhs for myself and 7 lakhs for my wife. I have 3.5 yrs daughter. Can you please guide how should I invest this amount?
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Vetapalem Sridhar answers, Hi! If u just invest the 20L in equities during the current levels in the market, in 11-12 yrs it should grow to around 1 Crore assuming a annualised rate of 15%. I would suggest that u split the amount into 4 or 5 funds. U can look at funds like HDFC Growth, Reliance Vision, Sundaram SMILE, SBI Contra, etc... If u need more insurance cover go for a TERM Cover. Build funds for ur child thro the same investments.
Gaurav asked, How can one start with Financial planning?
Vetapalem Sridhar answers, Hi Gaurav, I would suggest that u find a gud advisor who can help u create a Financial Plan. If u want to do it urself am listing down the process below. Let me put it down in points: 1. U list down ur future needs/ objectives in life. 2. Then covert needs into financial goals. And put the financial goals against a timeline (i.e. when u will be needing to make withdrawals from ur investments). 3. The second step is creating a family budget and understanding what is the amount of savings that u r left with. This will give u an idea of surplus regular investible amount. It will also enable u to evaluate ur curent lifestyle and project what will be the future cost of living. 4. The needs/objective and budget would form the inputs which would help u make a good financial plan. Risk planning would help u estimate the amount of insurance cover required. 5. A financial plan is made which would help u undertsand what kind of return u need to make on ur investments so that u can meet ur objectives. 6. Once this is known then the question of product selection and execution arises. 7. And the last step is monitoring and evaluating how the things r going on.
RAVI asked, FOR SECURED FURTURE SHALL WE APPROACH A FINANCIAL PLANNING ADVISOR? ARE THEY RELIABLE?
Vetapalem Sridhar answers, Dear Ravi, I can tell u that the right Financial Planning can be extremely beneficial. It can reduce uncertainty and bring a disciplined and organised approach to planning for ur future. But plz realise that until and unless each person takes interest and puts effort into their own money and investments, success cannot be assured. Neither trust nor mis-trust any advisor. Be aware about wat is happening and put efforts to learn about investments. It is ur money and hence it is ur responsibility to ensure that u r getting genuine and reliable advice. It would make sense to understand how the advisor makes money from u, so that u are aware of the pros and cons of dealing with that advisor.
ashok asked, Dear Sridhar, I have been investing for the last 13 months in DSPML Top 100, Franklin Prima Plus, Tata Infra, HDFC Growth, Kotak 30,Rel. Vision and Magnum Tax Gain. Presently my porfolio has been wiped off by 17%. Kindly suggest me, 1)shall I continue my sip to the above funds. If you advice me to continue 2)My funds are good or I shall do some changes. I am investing 22000/- p.m and do'nt need this money atleast for the next 8-10 yrs.
Vetapalem Sridhar answers, Dear Ashok, to ensure that ur money grows at a rate above inflation a suitable asset allocation is the key. And equity investments play a very critical role in it. It is not appropriate to stop investing into equities just because mkts r not doing well. Infact when mkts go down u buy stocks at a lower rate. In the long run it is more beneficial when the mkts rise. And as u urself have mentioned that u do not need the money for 8-10 yrs, u hv the ability to take and bear the risk of investing in equities. Would suggest that u continue with the funds u already own. //m.rediff.com/getahead/2007/jul/03fin.htm Asset Allocation - Secret to Financial Freedom
pg asked, How had invetsed when sensex 19000. How long i hv to wait to get back my invetsments if not profits
Vetapalem Sridhar answers, Hi! It doesnt seem that it is going to happen very soon. The next 1-2 yrs mkts r expected to remain volatile. Have a 4-5 yrs horizon and u should be able to make reasonable return on ur invested amt.
jp asked, I recieved Rs30L from inheritance.I am 31yrs old with Rs 55L term insurance. My take home pay is Rs 50k. I dont know what to do with the money i have inherited. Do you have any recommendations with what i can do with this corpus?
Vetapalem Sridhar answers, Hi JP, ensure that the sudden surge in ur wealth should not translate into a substantial change in ur Lifestyle. Ur lifestyle should grow only based on ur growth in income form work, atleast for the next 7-10 yrs. Work on ur long term needs and objectives and also list down any major expenses tht u forsee during the coming 4-5 yrs. Set aside funds for needs coming up during the next 4-5 yrs. The rest of the money should be invested into Equity MFs with a 10-12 yrs horizon. U will be more mature then to decide on how u wish to use the wealth. Over time when this investment grows and u feel that u do not need insurance cover, u can discontinue the Term Insurance Cover.
Jumb asked, With volatality in stock markets, MF and the like have taken a beating. Similarly, my returns from realty have also slowed down, what are the best avenues for investment that would guarantee returns - I am considering FMPs and FDs now. Please advise.
Vetapalem Sridhar answers, FDs r relatively the safest option. Be careful and evaluate the paper tht the FMPs is investing in. Generally u can get to know the indicative portf of the FMPs from the respective Mutual Funds before investing in them. All FMPs with any real estate exposure should be avoided. Ensure that the FMP is investing only in high quality paper. If u have a 5 yrs horizon, equities would still be a very gud option to remain invested. Real estate prices r expected to fall further during the coming months.
vivekmutha asked, hi, I am a software developer in bangalore with long working hours. Can you suggest some good mutual fund schemes so that I can invest around 15000 Rs a month for long term gains. Everywhere I approach financial advisors I get differing opinions...maybe because they are only interested in their 2.5% margin
Vetapalem Sridhar answers, It is best to start a SIP into 3 funds of 5K each. U can look at two funds from Reliance Vision, HDFC Growth, Sundaram Select Focus, SBI Contra and one from among Reliance Regular Savings Equity and Sundaram SMILE.
vivekmutha asked, hi, I am a software developer in bangalore with long working hours. Can you suggest some good mutual fund schemes so that I can invest around 15000 Rs a month for long term gains. Everywhere I approach financial advisors I get differing opinions...maybe because they are only interested in their 2.5% margin
Vetapalem Sridhar answers, Hi Vivek, would suggest that u can do a SIP of 5K each in 3 funds. Something like HDFC Growth, Reliance Regular Savings Equity and Sundaram SMILE should do. Other options r SBI Contra, Reliance Vision, DSPML Equity etc...
fgt asked, How long do you think this turmoil in the market will continue. Do you think we have seen the worst.
Vetapalem Sridhar answers, It is a difficult question to answer. Mkts can be expected to remain volatile for around a year. The Indian economy should slow down and the GDP should grow at 7-7.5% rate. There r a number of uncertainities that would determine how mkts would move. Oil prices, medium to long term implication of US bailouts, how severe the real estate correct would be in India, inflation and political scenario in india (elections). The fall in the mkts have led to a lot of companies being available at attractive valuations currently which have the potential to deliver gud returns over the long run.
Bhagwati asked, How do we choose the mutual funds to invest?
Vetapalem Sridhar answers, Hi! Most investors only consider past performance to evaluate and pick funds. There are a number of other factors that can be evaluated which can help in picking a better fund. Plz read thro the following link to understand these factors. How to select a good mutual fund A Slide Show, click NEXT to read thro.
Tamaghna asked, Considering 1) Different charges 2) long term 20 - 15 years of investment horizon 3) Absolute return - ULIP or direct investment in MF will be good?
Vetapalem Sridhar answers, A MF would be best if u r considering from view point of charges and return for a investment. For pure insurance cover, TERM Insurance is the best. Recently due to some changes by IRDA, the premium rates for TERM Insurance has dropped by around 30-40%.
satish asked, sir, my net salary is 1.1 L per month and i have an apartment in bangalore and paid all the loans , recently i bought an independent house and went for 50 laks loan. i do not have any insurance or mutual funds or any investments as such. I am 35 now and i am planning to work for 20 more years . what do you suggest for a person like me to invest.My wife is expecting first kid so i want to plan for kids future well in advance.
Vetapalem Sridhar answers, Dear Satish, Immediately take up a TERM insurance cover which would not only take care of all existing liabilities but would also be sufficient to take care of ur family in case something happens to u. Once this is done, ensure that u build sufficient funds into a bank FD to take care of any emergencies. Once this is in place, u can then focus on building funds for ur future needs/objectives. To build funds a suitable asset allocation plan should be adopted. Invest in a mix of debt and equity based investments. SIP into Mutual Funds is a gud way to start of investing into equities.
kju asked, How much will be the tax for FMP's more that one year. I am a NRI.
Vetapalem Sridhar answers, The gains will be considered as Long Term Capital gains in case of FMPs for more than 1 yrs. The taxation rate will be 20% post indexation or will be 10% on profits (without indexation).
gb asked, good afternoon sir, i am very much confused to invest at mutual funds and private insurance. i am paying yearly premium at HDFC LIFE INSURANCE last 5 years. till now, i donot know the present value of that and what amount i will get after matury. I aslo invest at ICICI SMARTKID for my daughter. i paid by SIP Rs. 20,000.00. but, that market value is only Rs. 14,500.00. i like to know, is it good for investment and insurence? at last, i invested different MUTUAL FUND. all funds are going 10 to 30 percent loss. my humble request to you sir, what i will do. plz. suggest me.
Vetapalem Sridhar answers, It is best to build funds thro investing into Mutual Funds. For Insurance a TERM plan should be an ideal choice. Continue with ur HDFC policy and pay premiums till the end. I think stopping ICICI Smartkid and investing in MFs for ur child should be a gud idea. Equities by nature will move in both directions. Would suggest that u do not worry about the current fall and continue investing with a 5-7 yrs horizon. Over time u will see that ur investments hv grown at a healthy rate.
Red asked, I have 3 SIPs(ELSS) 1.HDFC TaxSaver 2.SBI MagnumTaxGain 3.BirlaSLTaxRelif96.Recently I had taken TermInsurance 30L for 30yrs.Question is i had taken 1 LIC Endowment policy 3.7yrs back paying12000/Year and continuing & sum assured 2.5L.I am not interested in that.If i surrender i will get back 21,000 of 41,000 So loss is 20,000.I want to stop(instead of paying remaining 18yrs) and I will add 1 more SIP(MFs) is it Ok?I am doing right? How is my portfolio?Is Franklin India index Tax Saver is good?
Vetapalem Sridhar answers, I think surrendering ur LIC policy would work out to be a gud decision. Why do u want to invest in so many ELSS funds. Just pick 1 or 2 and continue investing in them. Increase number of funds only when u want to invest in a fund other than ELSS funds.
gaurav888 asked, hi m wrkin in an core mining company, dont hv mch knw abt financial markets n its wrk hw. can u pls advice me the best investment for long term, as i ws look to invest in a ulip plan in Kotak life insurance. can u please let me knw is it right to invest in aulip plan considering the market situation??
Vetapalem Sridhar answers, Hi Gaurav, in the ULIP policy if u select the option which invests into equities, the money would be exposed to the risks of the stock market. Most people get a feeling of safety as when they invest in Insurance they do not look at the investment value everyday. If u hv a long term horizon, and want to invest into equities, a Mutual Fund due to lower cost structures would be a better option than ULIPs.
RAVI asked, Buying gold thru gold loan from bank is worth financial investment?
Vetapalem Sridhar answers, Dear Ravi, taking a Loan to buy gold is not advisable. It would istead be advisable to invest via a SIP (equal to EMI amt) into Gold based Mutual Fund.
Joshi asked, Hi Sridhar, I am 34. My wife 28. I earn 50,000 pm. Wife earns 14,000 pm. We will pay EMI of 20,000 for next 5 years. Other expenses are 16,000 pm. I want to take good term insurance of 30 LAcs for me and 15 lacs for my wife with covering for a long period. Pl suggest good schemes. We have a son of 2 years and expecting 2nd shild in April'08. Where i should invest to ensure 1) Education amount for my kids & 2) Comfortable retirement life. PF gets deducted from my salary.
Vetapalem Sridhar answers, Hi, u seem to be doing gud with ur money. For a TERM Insurance u can get quotes from SBI Shield, Reliance TERM Plan, ICICI pru Lifeguard WROP, Kotak (Preferred in case of Non-smoker) Term Plan and pick the one that works out cheapest. Pick around 40L in ur case. I think a 12-15 yrs cover should be sufficient. During this time invest money wisely and build a corpus, so that the need for insurance would not remain. Ur current savings potential is around 3L per yr. This along with increase in savings potential in future, if invested wisely should enable u to achieve Financial Freedom in around 12-15 yrs time, assuming ur maintian ur current lifestyle.
Krishnan asked, Hi! I moved to a new job and withdrew all my earnings in terms of PF/SA/Gratuity it adds up to 11L,thought of going for my second Home loan but when did an analysis keeping in mind the inflation/high ROI on Home Loan decided against.I just did a Calculation if I invest my amount of 11L @14% in portfolio scehmes with Co's like Geojit more on debt shae, at the end of 15 years on compound interest the amount I should get excluding TDS is approx 1.80 Crores how correct is my understanding - please advise other options if any,Thanks,regards
Vetapalem Sridhar answers, 11L at 14% annualised should grow to around 78L in 15yrs time. And I do not think that u can sustainable make 14% annualised thro debt investments over the next 15 yrs. However if u invest this money thro equities, it is possible to make the expected returns over a 15 yrs horizon.
Vetapalem Sridhar says, Dear Friends, hv run out of time now...will catch up soon!
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.
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