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From PPF to MFs: Is it a good idea?

January 16, 2009 12:03 IST
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Is it a right time to buy mutual funds if you are a first-time investor? What kind of mutual fund should you buy in that case? Should you go for an equity linked saving scheme, ELSS, or sould you go for monthly income plan schemes?

How should you cope with the current stock market losses? Also, which are the other investment options apart from stocks and mutual funds? Will the property market bottom out this year?

If you are investing your money only in public provident funds then should you start putting your money in mutual funds' systematic investment plans?

In a chat with Get Ahead readers on January 14, 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.

gh asked, in present scenerion is it advisable to invest in satyam?

Vetapalem Sridhar answers, at 2009-01-14 13:29:37 Hi, it is best to first wait till we have full clarity about the status of this company. We should always invest in those companies whose mgmts r focused towards creating shareholder value. There are a number of sound companies that should be considered for investment.

spa asked, I save almost 15K rs. a month...suggest me something where I can put my money which gives me assured gud return....

Vetapalem Sridhar answers, Hi, any place which gives u assured return at low risk will not be more than wat bank FDs offer. If u r Ok with this kind of return then u can look at options like PPF, Bank FDs, etc. If u r looking at higher returns then u should be ready to bear higher risk. Over long term equities have potential to deliver higher returns but with a risk of volatility in the short run. U should consider doing a SIP of part of the amt into MFs and rest into safer assets. Equity investments should hv a horizon of 5 plus yrs. U can consider MFs like Reliance Vision, HDFC Growth, DSPBR Top 100 etc.

Ria asked, I plan to start SIP on some equity diversied MF. Which are good options? What about Kotak 30 or Kotak Oppurtunities?

Vetapalem Sridhar answers, Dear Ria, Kotak 30 is a largecap diversified fund and Kotak Opp fund is an aggressive fund. U should first build a core portf consisting of large cap diversified funds. Once this is done, only then should u consider aggressive funds. Both these funds hv been doing reasonably well. Doing a SIP is a very gud idea.

debasish asked, my approximate income per year is 300000 i am investing rs 100000 per year to save tax. my yearly expenditure is approx 125000 how can i invest the rest money every year .i am 50 now

Vetapalem Sridhar answers, Hi Debasish, at this age u should plan carefully about ur future. There r still 8-10 yrs for ur retirement (assuming u r doing a job). That part of the 75K savings which u would definitley not need till u retire should be invested into Equity MFs thro a SIP route. The rest of the money may be invested into safer places like Bank FD or ur PPF A/c if u already have one. 3-4 yrs before ur retire u need to re-evalute ur state and replan ur investments.

naveen asked, Can you let me know any monthly income plan that have good return?

Vetapalem Sridhar answers, Hi Naveen, in a MIP the amt of equity exposure ranges from 5 to 20%. Over the coming 1-2 yrs u can expect to see a 10-13% annualised return thro investing into MIPs. MIPs should not be considered for thro who wish to have Monthly income thro this product. Reliance MIP, HDFC MIP, Templeton MIP would be some of the options that u may consider.

Anand asked, Hi i have around 10 Lakhs surplus cash. Looking for a 40% return annually. What to do in stocks?

Vetapalem Sridhar answers, Dear Anand, a 40% annualised return is not sustainable over the long run. At this rate in 10 yrs ur 1L becomes 29L and in 20 yrs it becomes 8.36 Crore. A more realistic return wiuld be around a 15-17% return over the next 10 yrs if invested at current levels in the mkts. I would suggest u to build a core portf consisting of bluechip (large cap) stocks and then pick some gud quality midcap stocks with higher growth potential.

sameer asked, i invest 27000 per month in various equity MFs through sip. I am thinking of starting investment in debt MFs. Is the principal protected in debt MFs?

Vetapalem Sridhar answers, Dear Sameer, Principal is NOT gauranteed in Debt MFs. The return from Debt Papers come from 2 components. One is from Coupon Payments (interest) and the second is from change in Price of the Debt paper. The Value of Debt paper has an inverse relation to interest rate movements. If interest rates rise then in short run, debt MFs may give negative returns. As over the coming mths interest rates r expected to fall, u can expect debt (income MF) funds to give slightly higher returns. I would suggest u to invest some money into equity MFs too.

ND asked, The markets are at a relative low currently. Is it the right time to invest through the SIP route? If markets are expected to go up in future, SIP route will keep on increasing the average cost of fund

Vetapalem Sridhar answers, Dear ND, SIP is an ideal strategy for someone who is going to keep on investing with discipline for a very long period (maybe throughout his/her working life). It is not dependent on mkts being low or high. if u start an SIP in a lower mkt and continue till mkts rise u would make a reasonably gud return. But the whole point is that it is not possible to predict with certainty how mkts will move, so SIP in the long run enables u to get units purchased at an avg price. Doing lumpsum investments when mkts r lower is a gud idea, but picking bottoms is very difficult.

sa asked, please suggest any good mfund large cap fund, i am ready to invest for 5 year, i have also invest SIP to HDFC top 2000, ICICI dyamnic fund from last 6 month with -tive 48% , please suggest can i invest for further, my time horizone are 5-10 year

Vetapalem Sridhar answers, Both funds r gud funds. Continue with ur SIPs in them. For a large cap fund u can look at options like DSPBR Top 100, Reliance Vision, Sundaram Select Focus, etc. With a 5 yrs horizon u can expect a 15-17% annualised return from current levels. With this horizon equity investing would be the best option.

tamanna asked,  I have 2 lakh cash with me. Where can I invest this? Gold/MF/share? and how should I split this? I'm 27 years old, so would like to take moderate risk. Thanks in advance !! About the gold, should I buy physical gold or go for gold share/MF?

Vetapalem Sridhar answers, Hi Tamanna, investment decisions should always be based on ur needs. If u need gold during the coming yrs u may start to buy it in small quantities from now itself. If it is for investment then gold ETFs maybe a better alternative. If u need money within 2 yrs then neither gold nor MF/shares r suitable options. Any money with a 4-5 yrs horizon can be allocated to equity Mutual funds. U can look at investing into HDFC Growth, Reliance vision, DSPBR Top 100, Sundaram Select Focus etc...

Rima asked, Good afternoon sir, I have invested in ICICI Prudential Pension Plan? Hows it performance wise and for long term, sir pls suggest

Vetapalem Sridhar answers, Dear Rima, Existing Pension products r highly inflexible. Although it ensures discipline (the problem which most people face), there r better alternatives available thro which u can create more wealth in the long run. If invested with discipline Equity oriented MFs would be a superior alternative to create wealth over the long term. Returns from Pension pdts over the long run would depend on the investment option selected and is mkt linked. Over the long run equities can deliver 13-15% returns from which u will hv the deduct costs of the pension pdt.

PVPAT asked, Is it advisable put cash money in Liquid Plus Funds or Arbitrage Funds or in FD for a period of 6 months to satisfy monthly expenses & earn a little good interest rather than savings a/c?

Vetapalem Sridhar answers, Liquid fund would be an ideal option as u can do a Systematic Withdrawal Plan from them of the mthly amt u need into ur bank. Each mth at the specified date the selected amt would be transfered to ur bank. Return wise a 6 mth FD and liquid fund may not be very different.

palka asked, Hi,Mr Sridhar, What is your opinion about investing in index funds, we are already seeing that only about 15-20% active funds beating the index in 1-2 year time horizon. in future they may find it even more difficult to beat the market.

Vetapalem Sridhar answers, Hi Palka, it definitely does make sense to invest money into Index fund which can form part of the core portf. Also for those investors who want to invest in ELSS funds but are not comfortable with the aggressive portf they build, u can consider investing in Franklin India Index Tax Fund . There is a lot of scope for well managed funds in India to outperform Index with a long term horizon. Hence it does make sense to also include some actively managed funds into ur portf.

Sumit asked, Hi Sridhar, at present market scenarios which two ELSS scheme is the best at your suggestion?

Vetapalem Sridhar answers, Hi Sumit, for those who want a large cap ELSS fund Franklin India Index Tax Fund would be ideal. Among the regular ELSS funds u can look at Sundaram Tax Saver and HDFC Tax saver.

girdhar asked, Hi, I already invest 100000 under 80c. Can I do more investment for tax benifit or what I will do for saving tax?

Vetapalem Sridhar answers, U can invest more than 1L in places where u get tax benefit, but u can CLAIM only UPTO 1L u/s 80C for tax benefit.

pankaj asked, Can you suggest a few equity oriented mutual funds for an investment period of 2-3 years, risk appetite high, investement 3000 pm uin SIP or Rs, 25,000 one time

Vetapalem Sridhar answers, U can look at Reliance Regular Savings Fund, HDFC Growth, Sundaram Growth, etc with a 3-4 yrs horizon.

pradeeptpatra asked,  I have invested in SIP of rs. 1000 each in franklin flexicap, Bsl frontline qquity , RELIANCE vision, reliance diversified fund , hdfc tax saver . My objective is to create a corpus of 60lacs in 15-18 years horizon, wheather my portfolio is ok or not pls. advice me

Vetapalem Sridhar answers, Dear Pradeep, the portf is gud. To meet ur trgt ,over time u should increase ur investments as ur savings potential goes up. With the existing investment plan u may be able to grow the money at around 13-14% over this tenure which would help u build a fund of around 41 to 47L.


Vetapalem Sridhar answers, Dear Bob, based on current scenario, it is likely that real estate prices in India will bottom out during this yr. It is not possible to say exactly by when they would hit bottom. So if u plan to buy real estate, u should start look at properties from now onwards and go ahead whenever u get a suitable deal. The factors to be monitored are loan interest rates, default rates in repaying housing loan (especially in case these is major downsizing in Satyam), global economic situation.

Nigam asked, Hi i m earning 4LPA I am investing 1000 as SIP in Reliance Power Sector,ICICI Infracstructure n ICICI Tax Plan . can u plz tel in which MFs i ll invest more..

Vetapalem Sridhar answers, Hi Nigam, u r investing primarily into Sector/thematic funds. U first need to build diversified large cap funds which would form the Core part of ur investment Portf. U can consider HDFC Growth, Reliance Vision, DSPBR Top 100, etc.

Amritha asked, I invest every year in PPF. I have 2 lakhs worth FD, insurance and NSC. At this time i would like to know is investing into mutual fund to diversify my investments a good idea? Lets say i have 50,000 and can invest into SIP (2000 a month), which mutual fund should i invest?

Vetapalem Sridhar answers, Hi Amritha, it is very important to have a suitable asset allocation plan to meet ur long term objectives in life. Equity as an asset class has the potential to play a very critical role in this. It is definitely advisable to invest the money into MF via SIP. U can consider funds like HDFC Growth, Sundaram Select Focus, Reliance Vision etc..

sid asked, hi..i still invets more then 250000 rs wid mutual funds.. can i know mehn i will get gud amt short when sensex will cross 20000+

Vetapalem Sridhar answers, Dear Sid, it will be a while before sensex crosses 20k. Keep investing regularly thro this lower levels in the sensex and over time u would make handsome returns from ur investments. I would suggest u to hv a 3-5 yrs horizon from now.

subroto asked, Sir, is it advisable to buy term plan Vs ULIP, i have 2 dependents and if yes which company to prefer

Vetapalem Sridhar answers, Dear Subroto, a TERM Plan should be the ideal option to cover the risk of Life. U can get quotes from Kotak Term Plan, Reliance Term Plan, ICICI Lifeguard WROP, SBI Shield, etc.

sunny asked, Iam investing in JM contra fund through SIP, is it good fund?. please advice

Vetapalem Sridhar answers, Dear Sunny, JM contra has invested in an aggressive portf of small/mid sized, but gud companies. It has performed very poorly on the past, but if u remain invested, then from current levels over the next 3-5 yrs the existing portf has potential to deliver superior returns.

psb asked, Shall I make a prepayment of my personal loan or I should go for the investment? I have surplus money. Shall I continue to pay EMI or prepayment or investment? Please advise

Vetapalem Sridhar answers, The answer would depend on the prepayemtn charges and the interest rate that u r being charged. I think u can also consider investing the surplus money into equities at current levels with a 3-5 yrs horizon instead of prepaying the PL. If u plan to invest the money into debt, then it would be better to prepay the loan.

aishwarya asked, I have jeevanshree (5L SA), bimagold (2L SA), and a term policy from HDFC (6L). My total cover is 14 lacs. I have also taken Market plus-1 for 15yrs and the yearly investment is 10k. I invest around 15k in PPF and 20K in EPF yearly. Apart from this I invest around 6k SIP in MF (HDFC growth - 1k, longterm advt-1k, Sundarma Taxsaver-2k, ICICI taxsaver-1k, Reliance Growth -1k)and 8k in RD per month. Do you think this is a good profile? Sundaram taxsaver ends in Feb, I am planning to take ICICI dynamic(G)-1k and SBI Contra -1k, are these funds good? My monthly salary is 51k. Thanks

Vetapalem Sridhar answers, U hv invested in a host of options. U should look at simplifying ur investing over time. Go in for a higher Term Plan and over time phase out Jeevan Shree and ur Market Plus-1. This amt can be diverted to ur PPF. Continue with just 1 or at max 2 ELSS funds for ur tax needs. Other than this HDFC Grwoth, Reliance growth and SBI Contra should be continued. U seem to doing gud.

Vetapalem Sridhar says, That all for now Friends! Will catch up soon....

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