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7 steps to make a financial plan

February 26, 2009 11:35 IST
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How do you go about making a financial plan for you and your family? What are the benefits of making a financial plan? Do you need huge amount of money to start one?

Should you still invest your money in stocks and mutual funds despite a weak stock market?

To answer these and various other money and investment related queries, financial planning expert Vetapalem Sridhar, hosted a chat with GA readers on February 25.

For those of you who missed the chat, here's the unedited transcript:

Sc asked, I am having a pension plan from ICICI Prudential since the last 4 years. In the given market situation is it advisable to continue paying the annual amount for this product.

Vetapalem Sridhar answers,  at 2009-02-25 13:56:35Hi, investing in a pension product is to collect money for ur retirement. It is a long term investment option. If u have selected equity option in the pension plan, there is bound to be volatility in the value of ur investment. But over the long run as u invest money at regular intervals, u will buy units at different levels of the mkt. Thereby in the long run when mkt goes up, ur returns too would be gud. So continue to keep investing with discipline without bothering about the mkt in the short run.

Karthik asked, I'm willing to take high risk but I want high return. which fund is good?

Vetapalem Sridhar answers, Dear Kartik, u can look at some midcap funds for ur need. I would strongly suggest a SIP instead of a lumpsum investment in it. U can also look at an ELSS scheme (which generally invest in midcaps). Among ELSS funds u can look at HDFC Taxsaver, Sundaram Taxsaver, etc. In regular funds u can look at Sundaram SMILE, JM Emerging Leaders Fund, SBI Midcap, etc. U should expect high volatility in the short run in these funds though.

pravin asked, My wife is a School Teacher and she is earning Rs 10000 as take home salary. As of now she has no LIC policy. Which is the best policy for suggested for her. Also I want her to save at least Rs 5000 per month for next 10-15 years period. Which is the best option where we can earn good returns.

Vetapalem Sridhar answers, Dear Pravin, having a LIC policy is not compulsory. I would suggest that u get u and ur wife should get urself adequate TERM Insurance cover. U can look at ICICI Pru Lifegaurd WROP, SBI Shield, Reliance Term Plan, etc for ur TERM Cover needs. If u r focused about the 10-15 yr period, then I would suggest that u should do a SIP into large cap diversified mutual funds. U can look at options like HDFC Grwoth, Reliance Vision, DSPBR Top 100, Sundaram Select Focus, etc. Do not worry about the short term volatility in mutual funds, as in the long term they can deliver gud returns.

saju asked, I want to save 30 lakhs for my daughter's education. She is 6 months now. i plan to invest in HDFC Young Star Plus ULIP a sum of 60,000 annualy for a period of 15 years. Is this a prudent choice or should I invest via mutual funds.

Vetapalem Sridhar answers, Hi Saju, both options should be able to help u meet the targeted corpus, as long as the money is invested in the equity option. In case of ULIP an annual payment mode is better, whereas in case of a MF a mthly SIP would be better. Continue to invest with discipline 60K per yr for the next 15 yrs with discipline.

RS asked, Sir, I want to start SIP in SBI Magnum midcap fund and sundaram BNP select focus (RS1000pm in each). Are they good for 5 year term?

Vetapalem Sridhar answers, Hi, Select Focus is a large cap fund and should be a more stabler fund in current scenario. SBI Midcap has exposure to midcaps and hence maybe more volatile in the short to medium term. Togehter they would be a gud combination to own.

ramdas asked, My UTI ULIP matured this month. As per current NAV the sum is around 1.3 lacs. Kindly advise me what do I do, should I redeem the money and invest elsewhere or stay invested in ULIP. How about investing the money in Gold ETF.

Vetapalem Sridhar answers, Dear Ramdas, it would be a better idea to redeem the money now and invest it into a large cap fund over the next 6 mths thro a SIP of 20K. A gold fund at current prices in the long run may not be a very gud return earner. U can look at funds like HDFC growth, Reliance Vision, Sudnaram Select Focus, DSPBR Top 100 etc as options. Have a 3-5 yrs horizon for ur investment into equity MFs.

arjun asked, Which are the tax-saving funds that invests in small caps to mid caps?

Vetapalem Sridhar answers, Hi Arjun, most ELSS tax savings funds have a gud exposure to small and midcaps. Currently, though most of them have some amt of allocation to Large caps due to volatility in the mkt. U can look at options like HDFC Taxsaver, Sundaram Taxsaver, DSPBR taxsaver etc.

ananthblr asked, sir, my MF are runnning at 38% loss,shares at 54% loss,shall i take loan on my insurance preemium paid amount (roughly 5 lacks) and average these losses, r shall i keep this as it is or shal i exit from my holdings now

Vetapalem Sridhar answers, Dear Ananth, it is NEVER a gud idea to take a loan to invest in equity mkts to avg ur losses. I would suggest that u remain invested with patience and over time as mkts recover the prices of equities too would rise. Just ensure that u r invested into gud quality companies.

nps asked, Thank you for interacting with us. I am looking to invest 4-5 lacs in next 3 to 4 months in equities/funds for a period of 6-8 years. Can you please suggest me 3-4 largecap funds?

Vetapalem Sridhar answers, Hi, u can look at funds like HDFC Growth, Sundaram Select Focus, Reliance Equity Advantage Fund, Franklin Bluechip, DSPML Equity, etc. U have the right focus in investing. Stagger the investment of 4-5L over 3-4 mths.

bobby asked, which is better Nifty Bees or Blackrock 100 equity fund for long term for child

Vetapalem Sridhar answers, Hi Bobby, both options r gud. Nifty Bees is an index fund and it tracks the Nifty Index. DSPBR top 100 is a large cap fund. U can select the one with which u r more comfortable.

rajan asked, Is it still advisable to invest in gold at these levels? what should be the time frame if some investment is done in gold now? I am a long term investor.

Vetapalem Sridhar answers, Dear Rajan, currently gold is at an all time high. It is best to do a SIP into gold ETF rather than going for a lumpsum investment. Also ETFs r better than physical gold in terms of cost as well as liquidity. Currently investors r facing difficulty in selling physical gold in the mkt as a lot of merchants r refusing to buy gold. In the long run, Gold should be looked as an investment option which can store value rather than something that will generate return.

Ishwar asked, Considering expected volatility in the stock markets, I intend to park my surplus funds of 5 lakhs in Gilt or Income Funds for a year. If the market shows signs of recovery, I shall redeem and start SIP / STP in Equity Funds. Is this a good strategy? If so, which Funds would you recommend?

Vetapalem Sridhar answers, It is difficult to time the equity mkt. It does make sense to park money into a Liquid or an Income and do a STP from there into a equity fund from now itself. First u should select a equity fund that u want to do a STP into. Once u have deciden on it, u can select the liquid or income fund of the same fund house and invest into it and set up a STP into the desired equity fund.

rakesh asked, dear Sridhar UTI ARS bonds of my daughter are maturing on 1st April with matured amount around Rs 5 lakhs. I seek your advice about the investment plan for the redeemed amount for expected maximum ROI at her marriageable age 10 years hence investment horizon would be 10 years. thanks

Vetapalem Sridhar answers, Dear Rakesh, with a 10 yrs horizon, equity investment will be the option with potential to deliver the best returns. I would suggest that u invest the amt over a period of 1 yr thro a SIP into 2-3 Large cap funds. U can look at options like HDFC growth, Reliance Vision, Sundaram Select Focus, DSPBR Top 100 etc.

viswa asked, HI Sir,I am 32 years old and I am having following MF started one year back . Franklin india taxschield 2k/month SIP Templeton India pension plan 2k/month DSP black rock 2k/month SBI magnum taxgain 3k/month And I have 40k LIC/ Annum. Can I continue the same or should I invest in some other funds .

Vetapalem Sridhar answers, Hi Viswa, just pick one ELSS fund instead of so many and continue ur investment for tax purposes thro it. I would suggest that u stop investing into Templeton Pension Plan and divert the money to the ELSS fund picked. I would suggest that u should look at including large cap funds into ur MF portf.

Guru asked, Investment and Insurance can be clubbed?

Vetapalem Sridhar answers, Hi Guru, it can be clubbed (via a ULIP), but it is advised to keep Insurance and Investment SEPARATE. For Insurance the best option is to go for a TERM Cover.

rediff asked, Sridhar, I have a SIP of 1000 per month for Franklin India Prima Plus (Div reinvestment) (for two years) , Should I continue with it or should I start investing in some other fund ? Also, I have invested Rs 10K in SBI Tax Advantage Series 1 during the NFO. Now it has sunk to 50%. Moreover, I have been investin 50K per year in Kotak Safe Investment Plan2 ULIP for 3 years. And its showing negative returns as of now. Should I keep investing in it? Please reply!!!!

Vetapalem Sridhar answers, Hi, Equity as an asset class has been showing negative returns due to fall in mkts over the last one year. Most investors r seeing negative returns in the equity investments at this stage. When mkts r down it is best to continue to invest with discipline and wait patiently for mkts to recover. In the long run u should make reasonable returns on ur equity investments as mkts recover. Prima Plus is a gud fund. Continue with it. Also continue to invest in K-SIP2.

mahan asked, I have taken Fidelity tax saving fund 3 years back. The lockin period is going to over on 28 feb this month. Plz suggest wheather i should remain invested or withdraw from it.

Vetapalem Sridhar answers, It is not the best time to sell equity investments when mkts r at such low levels. So remaining invested is a gud idea. In case u need to invest for ELSS purposes, u can roll this money back into the ELSS fund after withdrawing or switching it into a different scheme of Fidelity.

ELSS asked, I hv taken Reliance Regular Saving Fund(RSF Equity) & Natural Resource fund last year january. Shall I continue with them thru SIP for a long term Or go with new Large Cap MF?

Vetapalem Sridhar answers, Hi, U should continue with Reliance RSF. The natural resourses fund can be replaced with Reliance Equity Advantage Fund, which is a large cap fund.

ashkul asked, Hi, I would like to get my ICICI loan refinanced to some other bank. Which one wud be good HDFC or SBI?

Vetapalem Sridhar answers, Hi Ashkul, r u planning to switch ur housing loan? U will have to talk to various banks to find out at wat rate they r willing to refinance. A public sector bank like PNB, BOI, SBI should be a better choice. U can use the following link ("Apnaloan Website") to see if switching ur loan makes sense.

PVP asked, My salary is reduced to 30% , I am not been able to continue my investment schedule in Equities & MF's to achieve corpus of Rs. 2 Cr. by 2050 , I need Cash in Hand-as Iput money in Short Term FD's- to run my Household & pay H.Loan EMI's, what should I do to achieve balance towards my Goal?

Vetapalem Sridhar answers, Hi, salaries will not remain down forever. Once the slowdown is over and the economy recovers, salaries should rise. At this stage foucs on keeping ur job even if it means taking a salary cut. It is wise of u to keep money aside to help u in such difficult times. Ensure that u keep a check on expenses during these tough times. Over time as ur salaries start to rise do not raise ur lifestyle and instead divert the additional money to meet ur long term objective. Once u feel that u r back on track u can take a call on improving ur lifestyle. asked, What should be the combination of Asset QAllocation in our PF for long term period of 10-15 yrs & ready to take moderate risk - PPF/NSC/FDs/MIS/LIC/Equity/ELSS/Gold/Property

Vetapalem Sridhar answers, On a broad basis Debt and Equity r the major asset classes for investment purposes. Other asset classes which get added with increasing wealth r real estate and gold. Initially build wealth thro Equity-Debt investments other that a house where u plan to stay. Under these asset classes there r a number of investment options. Debt - PPF, FD, Postal, etc. Equity - MFs, Shares, ELSS, ULIPs etc Choice of porduct should be in line with ur objectives and the overall risk return combination. Asset Allocation is based on individual circumstances and future objectives. There is no ideal formula. Plz read thro the following link to know the importance of asset allocation. Asset Allocation - Secret to Financial Freedom

YVR-1 asked, I have a SIP of 3000/- each in the following funds- All are growth plans with a horizon of 5-6 yrs. HDFC Prudence, HDFC Top 200, Reliance Vision (RP), Sundaram Select Mid cap, ICICI Pru Infrastructure, Tata Balanced, DSP BR Top 100. Is my choice of funds good? Please suggest changes if required. I am 29 yrs old & medium risk taker.

Vetapalem Sridhar answers, Hi, it does make a reasonably gud portf. Continue to invest with a long term horizon and u will make reasonable returns as mkts recover.

gupte asked, I have HDFC equity growth, Kotak Opportunities with 30% loss now and DSP top 100. Please advise on holding, suggestions for switch over

Vetapalem Sridhar answers, Hi, HDFC Equity and Kotak Opp have higher midcap exposures and r hence more volatile in current mkt scenario. U can look at holding onto ur investments and stop further invest in one among the above two funds. U can pick either HDFC growth or Kotak 30 Instead. DSP Top 100 is gud.

ELSS asked, I had taken LIC MoneyPlus ULIP two years back for 22yrs.term But its performance is now 50%down..I am planning to take ELSS route for a long-term perspective to build corpus for my Daughter's education(1year old)..Do suggest me..shall i discontinue that ULIP?

Vetapalem Sridhar answers, There was a lot of misinformation spread by some people during the launch of LIC Money Plus that they will deliver extraordinary returns. It is a normal ULIP scheme and returns r determined by mkts. At this stage it is better to continue to pay the 2rd installment before u evaluate ur decision about continuing with it. Using the ELSS route to build a corpus for ur daughter's future is a smart way to do it. It enables u to claim tax benefit and also grow ur money at a healthly rate in the long run.

Ramesh asked, We are 66 & 60 years couple with all childeren settled. Now I have got 20Lacs by selling a property. We would like invest this money for a regular assured income. Please advice.

Vetapalem Sridhar answers, Hi Ramesh, it is imp for u to plan how to invest this money. I would suggest that u chalk out a detailed strategy with the help of an expert. If u r looking at safety the money would grow at a slow pace and it would get exhausted in a few years. Estimate the amt of money that u will need for the next 5-6 yrs and invest it in a safe place. The rest of the money maybe invested into equities so that it can grow at a faster pace. This would ensure that the money lasts u longer.

durrani asked, I am 32 and want to accumulate 2C in 18 - 20 years. What is/are the best instruments to do so? I have taken ICICI Pru Smartkid, ING Life for 20L and have invested 2 Lakhs in Stocks.

Vetapalem Sridhar answers, Hi, ULIPs may not be such a gud option to grow ur money at a gud rate. With a 18-20 yrs equity MFs should be a better option. A 16-17L p.m. investment into equities over the next 20 yrs hsould help u accumulate around 2 Cr.

rr asked, Hi Sridhar, I have 20k surplus money every month...I am investing in Large CAp Equity diversified MF...but I still have around 7k of disposable money...where shud i put this to get higher liquidity with decent returns??

Vetapalem Sridhar answers, It is best to collect the money in ur bank and do a FD of it when it becomes a sizeable amt.

Deven asked, I have taken ELSS Mutual Funds Jan last year, after market slumped the NAVs were on bottom. To average out the cost I purchased same schemes this year. Was my decision correct? Which are good ELSS funds currrently performing in the Market?

Vetapalem Sridhar answers, Hi Deven, the decision to invest maybe right but definitely the reason is not. The reason to invest should be a focus to invest regularly with discipline for ur future. Invest in the same fund should have been due to the reason that equities r available at gr8 value and they offer potential for gud returns over the long run. AVERAGING is never a gud strategy especially in Direct shares. U can look at HDFC Taxsaver, Sundaram Taxsaver, etc as options.

CVSR asked, Hi Sridhar, I am 23. I am working for a const. frim since one and a half year. I have currently, a ULIP of 40,000 p.a. and 25,000 in NSCs, which are for the future. I would like to invest for quicker returns, say like 3 years from now, for my marriage. Apart from this 40,000 in ULIP I don have anything else to document for tax saving. Which would be the best option for me?? And which kind of mutual funds should i go for?

Vetapalem Sridhar answers, With a 3 yrs horizon, u should allocate a sizeable amt towards investing into a safer place like a Bank FD. With part of ur savings u can look at doing a SIP into large cap funds like HDFC Growth, Reliance Vision, Sundaram Select Focus etc. Continue with ur ULIP and avoid NSCs in future.

anantulapr asked, I am 27 now and drawing around 45000 per month as a software employee.My savings would be around 35000 per month. Currently I have invested some of my money in FD's and has not invested in any Mutual funds or equites. I am not intrested in shares. Can u please suggest me the best MF or eqity to invest in?

Vetapalem Sridhar answers, Hi Anant, u seem to be a gud job of saving a substantial portion of ur income. Keep aside that amt into FDs which u plan to use in the coming 2-3 yrs time (eg: ur marriage,etc). Apart from this if u r left with surplus, u should look at investing it into equity MFs with a 5-7 yrs horizon. Also invest some part of ur regular savings into MFs via a SIP. U can look at Reliance Equity Advantage Fund, Sundaram Select Focus, HDFC Growth, DSPBR top 100 etc. Avoid direct shares.

abhishek asked, i have 5 lacs with me. i want to park it for a tenure of 3-7 months.whats ur take on Income funds

Vetapalem Sridhar answers, Hi Abhishek, a bank FD or a Liquid fund should be a better option. Not worth the risk of investing into Income funds.

shyam asked, Age 48 VRS retired out of 30 lacks I have invested 12 lacks in equity through mutual funds, 14 lacks in Post & FD 4 lacks in gold, am I correct or wrong. any suggesstion ?

Vetapalem Sridhar answers, Hi Shyam, the allocation should be determined by ur current cash flows (inflow and outflow) and ur future needs. A allocation of 12L to equities is a gud sign as it enables u to grow ur money at a rate faster than inflation. Have a minimum 5-7 yrs for ur equity investments.

Rajeev asked, Dear Sridhar I have burnt my fingers after investing is shares and MF. My portifolio of 5 lakhs is down to 1.5 lakhs. I have kept some savings around 12 lakhs for buying apartment. Now builder is paying Pre-emis for another 1.5 years (completion is next year) for a loan of 30 lakhs. I want to invest 12 lakhs prudently and which can give good returns so that I can re-pay the loan by the time it is completed. Request your advice. 2 more questions 1) Is it good time to exit shares/stocks 2) Should I invest my existing savings in real estate

Vetapalem Sridhar answers, Dear Rajeev, equity is a long term investment options which in the short to medium term is volatile. U r experience a fall in ur investment value due to this volatility. This is one of the better times to invest into equities and not sell. Of ur 12L u should invest a part of it into large cap MFs with a 5 yrs horizon. The rest should be put into a safer place like a bank FD. Decide on prepaying ur loan when the time comes. Probably in a yrs time interest rates will be at low level, in which case keeping the loan may be a better idea. Real Estate prices too have come down, so if u can wait for 3 yrs or so it would make a lot od sense.

rashmigupta asked, can u please advice me how to make fin plan

Vetapalem Sridhar answers, Steps to follow in creating a Financial Plan: 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.

sanjeev asked, I am investing 4000 per month through SIP in Tax Saving ( SBI Magnum and Sundaram) funds. What are the ways and when can one liquidate these investments without any tax implications

Vetapalem Sridhar answers, Hi Sanjeev, in a ELSS fund the money in locked in for 3 yrs. After 3 yrs whatever gains u make qualifies as Long Term Capital gains. Tax on LTCG is nil. So gains are tax free.

vsrathore asked, Hi Sridhar, your advice are very markable. Please reply to me. My age is 29. I have been investing (my 1 Lac for tax saving) 43 K in LIC Endowment, 10K in PPF, and 47 K in ELSS for tax saving under 80c since last three yrs. Should i continue with this proportion or need a change?

Vetapalem Sridhar answers, After 3 yrs r over stop LIC endowment as returns r very low over the long run. Before u do that take up an adequate TERM Insurance cover. U can instead split the money into ur PPF and ELSS fund.

Nirav asked, Hi Sridhar, my wife & I have a net monthly savings of 50,000 currently I invest this money thru SIP in hdfc growth, reliance vision & growth, birla mid cap, dsp tiger, sbi tax gain abt 10000 is directly invested in the market 50,000 annually is invested in PPF please provide ur suggestions on my portfolio

Vetapalem Sridhar answers, Cut down on Reliance Growth or Birla Midcap and reallocate to a large cap fund. Take up adequate TERM cover if needed. Rest looks gud.

Vetapalem Sridhar says, Thats all for now Friends! Will catch up later....

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

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