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Why you should invest while you're young

August 20, 2009 13:18 IST
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Which is the best mutual fund to invest now? Should you invest in equities directly or route your investment through mutual funds? Will equities give better returns than investment in real estate?

What are the pros and cons of the new pension scheme? Why ULIPs are not the best investment instruments?

In a chat with Get Ahead readers on August 19, financial planning specialist 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.

Shrikar asked, I m 24 and earning 35k in month..what kind of investment would be suitable for me... How much every month I can invest in Share Market?
Vetapalem Sridhar answers,  at 2009-08-19 14:20:05Hi Shrikar, it is gud to see u start thinking about investing at an early age. Only that part of savings should be invested into shares, which u can keep invested with a min. 5-7 yrs horizon. Ur current focus should be on building funds for near term needs (eg. marriage, etc). This money should be built in a safe place like a bank FD. At this stage it may be wiser to invest into equities via Mutual Funds and spend time to learn about stock investing.

bap asked, i am 25. i earning 20k in month. What are investment options for longterm.
Vetapalem Sridhar answers, Hi, u will need to use a number of investment options to meet ur various needs over ur lifetime. The fundamental principle tht is most critical for success over the long run is Asset Allocation. Plz read thro this link : U will primarily need to use debt and equity investments. For debt u can look at Bank FD, PPF, gud quality Company FDs/debentures, etc. For equity u can look at investing into direct stocks or via the mutual fund route. In MFs primarily invest into Large cap funds like HDFC Growth, Reliance Vision, DSPBR Top 100, Sundaram Select Focus, etc....

chotu asked, Hi ,last year I took the Smart Kid Policy of ICICI and investing Rs 60K per year. How is this policy and benefits of same. This is for my son of 3 years
Vetapalem Sridhar answers, Hi, the cost structures for a such a policy is slightly on the higher side. U need to pay a minimum of 3 installments. The returns would depend on the fund option selected. Select the equity option if not already done. It maybe a gud idea to evaluate how much funds u need to create when ur son would need it in future. Based on that u should decide how many installments u should pay.

sameer asked, If i keep 100000 in Fd for 10 yrs what will i get after 10 yrs
Vetapalem Sridhar answers, Hi Sameer, assuming u can grow the money at 8% CAGR, the 1L will grow to around 2,15,892. Currently there is a high quality paper on offer from L&T Finance which has a 10 yrs tenure and offering around 10% interest rate. If invested in such a paper 1L will grow to around 2.6L.

bishen asked, hello. im 22 will start working soon. my pay will be 3.2 lakhs per annum. where should i invest to get decent returns and also not compromise much fun associated with the salary at a younger age...
Vetapalem Sridhar answers, Hi Bishen, at such a young age the responsibilities r fewer. So u can definitely save adequate sum to help u for ur future. I would suggest that u should save atleast 5K monthly. Of this start a SIP of 3K into a large cap fund like HDFC Top 200, Sundaram Select Focus or DSPBR Top 100. The rest 2K can be put into a RD. Over time u should spend time to learn about investing and take a more responsible view about how u wish to improve on ur savings and investing.

vikas asked, hi, i am 35, earning 50k p.m and wife earning 20 k p.m. we have a daughter aged 8. please suggest a plan for getting money for her higher education abroad, marriage when she is 23-24 and a regular pension for us after 20-22 years from now. Please guide
Vetapalem Sridhar answers, Dear Vikas, u must look at building a long term financial plan. Work out a balanced Asset Allocation strategy as part of this plan. A major part of long term funds needed should be built using equity investments. This should be mainly done thro SIPs into equity oriented Mutual Funds. For ur daughter's fund needs read thro the following link: Investing for children A Slide Show, click NEXT to read thro. For the debt part of ur long term investing u should look at PPF and the NPS as options.

Starting early helpsVJ asked, Which is the best Term Life Insurance product in the market (in terms of cost effectiveness); should I go in for the Critical Illness, Accidental Death, Premium waiver riders as these tend to increase the cost by quite a bit. Thanks
Vetapalem Sridhar answers, The cost differential between TERM Insurance products of various companies is not very high. Based on cost competitiveness, u can look at ICICI, Religare, Reliance, Kotak, etc. U can get quotes using premium calculators available on the resp websites. Accidental cover is not reqd. The major cost is tht of Critical Illness rider. The decision regarding this would depend on the medical cover tht u already have. It is a personal decision whether u wish to avail of this rider or plan for any illness separately.

PagalAadmee asked, Dear Vetapalem, I am 25, and earning 50 K per month. Is it a good idea in investing Retirement and Pension plan from now? If much amount should I invest and what plan will give me better benefits. Please Suggest.
Vetapalem Sridhar answers, Existing Pension and retirement products offered by Insurance companies are not the best options available. By Planning properly u can create more wealrh for ur Retirement needs. It would make sense of investing thro better alternatives (Equities, PPF, NPS) and designing ur own pension system at the time of retirement.

vinod asked,  I want to invest for my child who is 3 years old now for future higher education and marriage. Kindly suggest policy
Vetapalem Sridhar answers, Hi Vinod, u should take up an adequate TERM Insurance cover for urself. Once this is in place u should focus on investing money wisely to create adequate funds for ur daughter's future. This should ideally done by doing a SIP with a 15 yrs horizon into a large cap equity oritented Mutual Fund like HDFC Growth, Reliance Vision, DSPBR Equity, etc.

psingh asked, hi, I would like to invest some part of my savings in gold, for a long term prospective which is better physical gold or Gold ETF's, please advice and suggest some good options, thanks in advance
Vetapalem Sridhar answers, Hi, ETF's would definitely be a better option if u want to invest into gold with a long term horizon. There r a number of ETF's like Benchmark Gold BeES, UTI Gold Exchange Traded Fund, Reliance Gold ETF, Kotak Gold ETF, SBI Gold Exchange Traded Fund, etc.

Smiles asked, I am 32 years and I do not want to invest in stocks and Mutual Funds because once I lost Rs 5000. Please suggest what I should do? Is it the right time to invest in real estate?
Vetapalem Sridhar answers, Hi, once bitten twice shy. This will be true only till the time mkts remain at lower levels. Once mkts again rise substantially and are in a strong bull phase u will be entinced to invest. U will again experience the mistakes made in the past. To avoid such a scenario, I would suggest tht u start investing into LARGE CAP equity Mutual Funds thro a SIP. DO NOT expect or look at returns in the short run. Invest with a 10-15 yrs horizon. U will definitely make decent returns if u follow this advice. To invest in real estate u would need huge amounts. If u can afford to invest then with a long term perspective u can expect to make decent returns thro real estate investment.

modink asked, I have taken term plan of Rs. 30L,SIP in BSL Frontline equity,BSL infra fund @1500/-pm each, HDFC TOP200 2500/-PM, ELSS SBIMTAXGAIN 28500/-, BSLTAXRELIEF20000/- and Morgan Stanley ACE Fund 10000/-. Whether the portfolio is ok. I want to invest further 5000/-PM Kindly suggest considering the current portfolio.
Vetapalem Sridhar answers, Increase SIPs in HDFC Top 200 and BSL Frontline. U seem to be doing OK. Continue to remain invested with the funds with a long term horizon.

PSA asked, Hi I am PSA.. I am 26 yrs & earns 20000k per month. How should I plan my investments. I hv recently got married and my husband's income is 50,000 k... we r also planning to buy a house.. how should we do it? Our monthly expenditure is close to 35000k including rent, travel cost, groceries, phone bills etc. Is it advisable to buy a property around mumbai?
Vetapalem Sridhar answers, Hi PSA, u can afford to buy a property of by taking a loan of around 35L based on figures given provided u hv money for downpayment. It definitely is among better times to buy a property currently.

ravster asked, Do you feel it is a good idea, to invest in company fixed deposits which are giving interest rate of around 10 - 11% compared to banks
Vetapalem Sridhar answers, Ensure that the company issuing paper (FD or Debentures) is reputed. Then evaluate the quality of the paper is highest (determined by its charges on assets of company in case of default by company). As a word of caution, if a company is issuing very high rates as compared to that prevailing in the market, then it means that the risk is higher.

deep asked, I have a son who is around 1 year. What financial plan would be ideal considering to cover his education & marriage, besides covering adventualities etc. I can save 5-8K per month for it. Is child education plan/insurance/fund better for this purpose. Should i get it done on my name as a guarding or on his.
Vetapalem Sridhar answers, The first part of the question is already answered in the previous questions. The to second part of ur question this is wat I would suggest. Invest the money in ur name and put ur child's name as the second holder with the spouse as the gaurdian. Otherwise on attaining majority at the age of 18 yrs, the huge sum of money would go in control of ur child where there is a risk of money not being used for the purpose it is intended.

rashmi asked, DEAR SRIDHAR Please let us know the thumb rule for savings in % This is including pf amount.For eg., 5.4 is my CTC
Vetapalem Sridhar answers, Hi Rashmi, there is no thumb rule as such regarding savings as a percentage of ur earnings. During different times in ur life this will vary widely depending on major decisions (loan for house, lifestyle u adopt, unexpected expenses, etc). Effort must be made to save as much as possible. Ideally u should before the start of year estimate ur expected earnings and expenses and arrive at a potential savings figure. This is the targeted savings that u should do either by setting aside amt each month or by setting aside ur bonus etc.

sujay asked, Hi, I am planning to invest in NCDs (L&T Finance) for 88 months. What can you advice plz?
Vetapalem Sridhar answers, Hi Sujay it is a very gud option.

kavitha asked, Hi. My monthly earnings in after all expenses & deductions is arnd 10k. how should i ivest it smartly to get maximum gain in aperiod of 6m to one year. which open ended MF should i look at & how much return can be expected out of it
Vetapalem Sridhar answers, Hi Kavitha, equity MFs r not a suitable investment option for a period of 6m to a year. To invest in equities u should invest with a 5 yrs plus horizon. It maybe a better idea to invest the money into a bank FD.

Vin asked, I am planning to retire by 2025 and would need 1.5 crore in 2025. The calculators says i need to invest 25000 permonth @16%PA for 13 years to achieve this. Can i invest the complete amount in mutual fund SIPs.Is it wise?
Vetapalem Sridhar answers, Yes u can invest the entire amt into SIPs of MFs. However a it may be wise to take a 13-15% annualised return into ur calc for the tenure u hv in mind.

kumar asked, Please suggest 2 or 3 very aggressive MFs for 2 or 3 years. I want to take risk for Rs. 1.50 lacks to invest in these MFs.
Vetapalem Sridhar answers, Some of the aggressive funds are Reliance Regular Savings Fund, Sundaram SMILE Fund, SBI Magnum Global Fund , etc. However such funds should form only a small part of ur overall portf. Around 70% of ur portf should consist of large cap funds.

nm1 asked, Sir, I have LIC jeevan anand which is 8yrs old, shall I close this and take Term insurance? Pl advise.
Vetapalem Sridhar answers, Hi, it definitely would make sense for ur to take a TERM Insurance Plan and then close the Jeevan Anand policy. But at the same time ensure that u invest the future yearly installments wisely in something like PPF or equity oriented MFs with a 10 plus years horizon of investing.

jim asked, does jeevan saral plan from lic of india gives lucrative returns of more than 10% compounded as presented by the lic agent?
Vetapalem Sridhar answers, Hi Jim, there is no gaurantee in the return that LIC Jeevan saral plan will give. A more realistic return expectation would be closer to the rate of inflation and not tht claimed by the insurance advisor.

Vin asked, How good are the ratings given by mutual fund websites like eg if i start an SIP today for 2 years on a 5star fund, that fund would have gone down to 2star by the time the SIP is complete.What should an investor do in such a situation?
Vetapalem Sridhar answers, Most ratings are analytical in nature, derived from past figures. And past performance (figures) is not indicative of future performance in Mutual Funds. Use the ratings only as a guide and not as the sole criteria to select funds. I had written an article which enumerates the various points that may help u decide on shortlisting funds for investment. Read thro the link below: How to select a good mutual fund A Slide Show, click NEXT to read thro.

mohammad asked, i have a PL of 4 Lac with an EMI of 9600 (Started in Apr'09, 120 EMI).A CL of 2.5 lac with 33 EMI left (Rs.7745)and a HL with 3.5 lacs with 8 years left with a monthly installment of rs.5530 let. I have saved about 5 lac saved and would like close one or two loans.Whoch lean should i close first and why?
Vetapalem Sridhar answers, Hi Mohammad. The answer is as simple. Close the loan where u r paying a higher interest rate. Close ur PL immediately. Work on negotiating with ur bank to reduce prepayment charges which will be applicable. Do not prepay ur HL even if u hv the money. Invest this money instead.

Vetapalem Sridhar says, Thats all for now Friends! Will catch up soon to answer further queries.....

Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at
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