Do things like mutual funds baffle you? Are you aware of the investment options they provide? What are the best mutual funds available in the market? Which funds accrue maximum profits? What are the crieria for evaluating a fund?
Which funds provide the best SIP options? Are SIPs the easy way of making quick bucks? When and how should one buy mutual funds?
Personal finance expert Rahul Goel answered to many such readers' queries during an hour-long chat on Thursday. Here is the transcript:
Moneysh asked, Hi Rahul! will you please tell me how can we check How well diversified is the fund we have invested in?
Rahul Goel answers, at 2007-12-06 12:57:56 hi. well, there are several ways in which you can check that. in terms of concentration in stock holdings, we usually look for funds which have 40% or less of their monies in the top 10 stocks. similar criteria are establised for sector weightage etc. so, diversified in terms of exposure to individual as well as say top 10 stocks and also to sectors (again individual and cumulative nos.)
pipp asked, At a time when the stock market is sniffing at 20,000 points, do you think it is advisable to buy mutual funds? what if the market tanks? Pleaes advise.
Rahul Goel answers, hi. its always a good time to invest in mutual funds. however, you need to choose your funds and / or mode of investing according to your needs and also the investment environment. so if today you "need" to inevst in equtiy funds, then you may want to go the SIP way as against putting in all the money today. or you way take exposure to debt funds which are relatively more safe. so, given the options available you can continue to invest in funds. a word of caution here... the monies you are investing should be as per a defined plan that you have drawn up to meet some objective.
asked,
Rahul Goel answers, hi, among the better funds are hdfc tax saver and franklin india taxshield. however, before commiting monies to these funds, be sure you have got the allocation for the Rs 100,000 investment limit u/s 80C right for yourself.
asked,
Rahul Goel answers, pradeep, hi. well, what you are referring to is a ULIP plan. whether it is right for you or not would depend on the plan that has been drawn up for you. if you already have sufficient term insurance and pure investmetn products in your portfolio, a small allocation to a ulip may work for you. but before you commit monies to a ulip be sure you have term insurance.
asked,
Rahul Goel answers, ashish, hi. well, to begin with you need to define your investment objectives and then contribute monies to the plans that will help you achieve those objectives. if your needs are out atleast 5 yrs, a good start would be to contribute to well diversifed equity funds, 5/6 of them, via the SIP route. if however you do not have appeite for risk, other instruments will need to be considered. also, since you are young, get yourself a term insurance plan which will cover you atleast till you are 55 yrs of age.
asked,
Rahul Goel answers, pradeep, hi. well, once you have committed monies to a well managed equity fund you should ideally wait for a 3yr period to see the results. evaluating over shorter periods may result in you not being able to appreciate the abilities of fund managers which invest for the long term. also, it may be wise to have 2 tax plan schemes in your portfolio.
GAURAV K asked, Dear Sir, Kindly advice for best ELss funds for long terms and diversifed equity funds for time frame 18 months to 36 months.
Rahul Goel answers, gaurav, hi. with regards to the ELSS i have already suggested a couple of schemes earlier in the chat. with regards to diversified funds, you need to have a minimum investment tenure of 3-yrs. in fact the longer the tenure the better. you should aim to build a portfolio of 5/6 funds, with the core holdings being funds like hdfc equity and fr india flexicap.
asked,
Rahul Goel answers, hi. the post tax maturity value of this money would be about rs 8.5 lacs if you are in the highest ttax bracket. whether this is sufficeint i do not know as the information you have provided is limited.
asked,
Rahul Goel answers, mike, hi. well, both are similar funds, but not same for sure. at personalfn we recently did a note comparing the two and we came to the conclusion that both have their strengths. however, at personalfn, we tend to recommend fr flexicap over prima plus even though flexicap has a shorter track record. this is due to several reasons including that arguably india's top 2 fund managers jointly manage the fund.
asked,
Rahul Goel answers, santosh, hi. well if you can take near term risk, and have atleat a 5-yr investment horizon start your SIPs into well diversified equity funds. i am assuming you ahve allocation to debt already via PPF, EPF and the traditional savings based insurance policies. also, before you actually start inveting be sure you have the right schemes, in the right allocation, in your portfolio. in case you want to double check with me the recommendations you get, write in to me at rahul@personalfn.com and i will be happy to share my views.
asked,
Rahul Goel answers, parth, hi. i think before looking at the tax liability you should evaluate whether or not you are comfortable with have a liability on your personal balance sheet. if you are not, then you should seriously consider repaying the loan. but if you are comfortable then you may want to keep it as there will defitively be some significant saving of tax.
asked,
Rahul Goel answers, venkat, hi. the best way to go about this is to identify funds which are best suited to you. once the portfolio is ready, then you pick and choose the short term debt/float/liquidplus fund. the more critical step here is to pick the right funds where the money will ultimately get invested. also, note that liquid funds attract higher div dist tax; opt for short term debt or float or liquid plus funds instead.
asked,
Rahul Goel answers, suman, hi. well the first step that you have taken is to buy a ULIP. this was a wrong decision. ideally, you should have bought your self term insurance which would have covered your family till you are 55 yrs of age. the next step would have been to inevst in pure investmetn products like mutual funds and real estate (your own house, if you do not have one already). the debt component is being taken care of by your EPF/PPF. given that you are young, and possibly have appetite for risk, you should consider taking risk to maximise return i.e. invest in the stock markets. you could do it directly or via mutual funds. the choice between the two will depend on whether you have the skill to identify stocks and the time to track them. in most instances we find the mutual funds are a much better option. maybe you can read the financial planning guide for the youth on personalfn - www.personalfn.com/investment/ms (its free of charge).
preyesh asked, Rahul, Which is best section of MF (Diversified or liquid or infrastructure) to invest if i have plan to puchase FLAT in next 2 years.
Rahul Goel answers, hi. if you are in need of money 2-yrs from now, it may be wise to avoid any significant exposure to the stock markets. opt for FMPs, FDs etc.
asked,
Rahul Goel answers, amit, hi. save as much as you can as every rupee invested today is worth more than a rupee tomorrow. where to invest will be a function of your needs, profile etc.
asked,
Rahul Goel answers, rocky, hi. well, the real estate funds which are being launched do not interest us much. in fact we will be telling our clients at Personalfn to avoid investing in them.
asked,
Rahul Goel answers, ravi, hi. you have some good funds in your portfolio... but you can do without some of the schemes. in our view, if you own fr flexi then the need for a bluechip is diluted... we prefer diversified funds (blue chip is a large cap fund). also, you may want to consider adding a value style fund like dsp ml equity or quantum long term equity to your portfolio. (disclosure - quantum mutual fund and personalfn share the same founder)
asked,
Rahul Goel answers, deepak, hi. all sector funds that are focussed on the infrastructure sector have done well. however, we think that the risk return tradeoff does not work to the benefit of the investor. we have been recommending to our clients at personalfn not to invest in sector funds. you mentioned a 1 yr horizon i think. well, any view on such a short term horizon would only be speculative.
Vishal Kapoor asked, Hello Gaurav, I am 28, and want to do some savings for pension. If I want to get 40,000 as pension after 30 years. how much amount I should pay for pension plans offered by HDFC or ICICI banks. Please suggest me on this.
Rahul Goel answers, vishal, hi. well, i do not have an answer for your query. but i can share this with you... to generate a rs 40,000 pm pension, assuming an inflation rate of 6% pa, you would need to accumulate rs 5.5 cr at the end of 30 yrs. assuming a return of 15% pa, to reach that goal, you will need to set aside about rs 10,000 pm!
asked,
Rahul Goel answers, som, hi. inflating this current expense at 6% pa, the expenditure will amount to rs 170,000 pm. however, your standard of living is bound to improve, and hence it is only rational to expect this number to be even higher. start saving for your future needs now!
asked,
Rahul Goel answers, hi. the cost of terminating an insurance in the initial years can be prohibitive... so in that sense you should be prepared to take that hit. if you had put this query before taking the policy, the view would definitely have been term + mutual fund.
Vishal Goel asked, Hi Rahul, My mother is taking VRS at the age of 57. where should we invest her money so that she will feel okay, and gain some thing from the PF and other funds
Rahul Goel answers,
Vishal Goel asked, Hi Rahul, My mother is taking VRS at the age of 57. where should we invest her money so that she will feel okay, and gain some thing from the PF and other funds
Rahul Goel answers, vishal, hi. well, definitely a plan can be drawn up for her. PF is one option. but you can also look at sr citizen scheme, MIPs, deposits etc. am unable to give you an exact allocation here and now as that would depend on the various factors including how dependable will she be on income from this money, can she take some risk, is she investing for say her grand children etc.
asked,
Rahul Goel answers, san, hi. before committing monies to a ulip, have your pure investment portfolio in place i.e. stocks, mutual funds, real estate, deposits etc.
money matters asked, hi, i have investments in four ELSS schemes, namely HDFC TaxSaver, Long Term Advantage, Magnum Taxgain and ICICI TaxPlan, and in four diversified equity scehems namely, HDFC Prudence, Sundaram midcap, Magnum Contra and Reliance Vision. i want to invest in a good ELSS and a good non-ELSS equity scheme through the SIP mode. Wud u advice that i invest in the funds i am already invested in (if so which ones) or do u have suggest any other good fund. i am not averse to exposures in a sectoral or pure midcap funds
Rahul Goel answers, hi. hdfc pru is a balanced scheme. sund midcap is a mid cap scheme. reliance vision is a large cap scheme. and magnum contra is a diversified fund but follows a contraraian style of investing. so, you do not own four diversified equity funds to begin with!! now coming to investing more monies, i think with regards to tax funds, you should add to existng schemes. but with regards to your non tax portfolio you need to ensure you have the right schmees in the right allocation. you should have the largest chunk of your money in diversified funds like hdfc equity and fr india flexicap. the sector or thematic funds should own no more than 10% of your portfolio.
asked,
Rahul Goel answers, hi. your portfoio is heavy on sector funds... although the weightage is not given, but it is fair to assume that a large chunk of your money is in infra stocks (as diversified funds also own stocks from these sectors). this si a veyr high risk protfolio in our view. if you appreciate the risk, then i guess you can keep it this way. but if you wish to take a more balanced approach to investing then you should be in well diversified funds. apart from prima plus and hdfc growth, none of the non-tax funds you own would classify as well diversified equity funds.
asked,
Rahul Goel answers, rajiv, hi. well, not sure what the Rs 10,000 refers to as we have not quoted a fee to anyone on this chat. however, remember this is a bull market and everyone has been right in his/her investment decisions. however, to do well over a stock market cycle you will need professional help (unless you are an expert yourself). if you wish to know more about our sevices, pl visit - http://www.personalfn.com/aboutus/whypersonalfn.asp
asked,
Rahul Goel answers, anil, hi. i am unable to give you a direct response as i do not know which shares you own. if you own the so called speculative shares then you may do well by booking profits. also, if you do not have the skill to track the companies in which you are invested, then its time to book most of your profits. don't get too greedy now! the fresh monies can be invested in line with your risk appetite and objectives.
Rahul Goel says, Thank you all for particpating in the discussion! See you all next week! In case you have any query that you want us to look into in the interim, please email us at info@personalfn.com
Chat with Rahul every week!
For more transcripts, click here!
