How to invest for your child's future

To answer these and various other money and invetsment related queries, financial planning expert Vetapalem Sridhar, hosted a chat with GA readers on Janauary 28.

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

suniel asked, HI I want to invest for my childs future who is 2 yrs old , i have already invested in SBI child education plan and HDFC child pls plans for her , but still can you please suggest any better options for her future.

Vetapalem Sridhar answers,  at 2009-01-28 14:01:26Dear Sunil, u have not mentioned whether the investments made by u r in Insurance or Mutual Funds. Ideally U should get urself an adequate TERM Insurance cover which would take care of child's future along with the other needs of the family. Once this is in place u should build funds for ur child thro a investing into Mutual Funds. Have comprehensively dealt with this issue in the link below. (https://specials.rediff.com/getahead/2007/aug/07sli1.htm) Investing for children A Slide Show, click NEXT to read thro. Some of the MFs schemes that u may consider are HDFC growth, DSPBR Top 100, Reliance Vision, Sundaram Select Focus, etc…

ASJ asked, Hi Sir, I have invested 10k in JM Taxgain (ELSS)NFO which is down by more than 60% now, though it has lock in period of 3 ys. but i m doubtful about this fund, Plz suggest what should i do?

Vetapalem Sridhar answers, Hi ASJ, most ELSS funds invest in Midcap stocks and hence r more volatile. As it is a ELSS fund u hv to remain invested. If u remain invested till the mkts recover to previous highs, u would still make reasonable returns on ur invested amt. But this make take a couple of years. If u wish to invest in a more stabler fund u can look at Franklin India Index Tax Fund, which primarily tracks the index.

noname asked, Tell me a pension plan. I have ICICI for 10K every year. I am 32 year three person(wife and kid) family and annual expenses of 3 lacs

Vetapalem Sridhar answers, Hi, it is best to build wealth thro a mix of debt and equity investments by maintaining a suitable asset allocation. There are a number of choices to invest into debt and equity. U need not invest in a pension fund specifically to build funds for ur retirement. Pension products thought they ensure discipline in investing, r generally more inflexible and have slightly higher costs. It makes more sense to invest into Mutual Funds for equity as it has potential to deliver higher returns over a 15-20 yrs horizon. For debt u can look at PPF, bank FD and a host of other options.

kyuan asked, hi, i am planning to invest 50000 evry month over a period of 5 years in reliance vision. is it a good investment. how much growth can i expect.

Vetapalem Sridhar answers, Hi Kyuan, I think it would be wiser to split the amt into 2-3 funds, though Reliance Vision is a gud fund. U can look at adding funds like HDFC growth, Sundaram Select focus, DSPBR Top 100, etc....Over 5 yrs assuming a return around 15-20% annualised u should be able to accumulate around 50L.

shek asked,  hi sridhar, Seening the current market conditions and the pattern the sensex is going, do you think this is the right time to start investing in stocks as a new entrant

Vetapalem Sridhar answers, Dear Shek, timing the mkt should not be the focus. If anybody serious in building wealth in the long run and has ability to bear some volatility in the short run, then equity is an investment option with potential to deliver gr8 returns. Follow the simple guidelines, invest in gud companies with a long term focus, invest regularly with discipline, do not let emotions interfere in decisions regarding investments, spend time and effort in learing about ur investments. Having said that it is always better to invest when mkts are at comparativley lower levels as ur downside risk reduces.

sahil asked, Dear Vetapalem, as someone in the gross income bracket of 10,00,000 and above, I used the LIC Jeevan Astha scheme to invest 60,000 of the permissable 1,00,000 for tax emeption. Im contemplating a subsequent opportunity/avenue for the balance 40,000. Could you give me a few good suggestions? Many thanks...

Vetapalem Sridhar answers, Hi Sahil, if u r looking at safer avenues, u can look at PPF as an option. Alternativly if u r open to investing into equities (which has risk of volatility), then u can consider investing into a ELSS fund. Among ELSS funds u can look at Franklin India Index Tax Fund (which invests in Index stocks and hence has relatively lower risk and return), Sundaram Taxsaver, HDFC Taxsaver. Also it maybe a better idea to take up an adequate TERM insurance cover and re-evaluate ur investment in Jeevan Astha (returns over the entire tenure tends to be quite low).

viv asked, Hi, Can you please suggest me good liquid funds, I am planning to invest 30K.

Vetapalem Sridhar answers, U can look at options like HDFC Liquid Fund, Reliance Liquid Fund, etc. Returns in liquid funds generally are similar over shorter tenures.

abcdefg asked, We are family of 3 and i have taken ICICI Prudential Smart Kid Policy of Rs 10000 annualy for 20 year policy..But would like to invest around 20K more every year for my Kid(3 Year Old). Could u please suggest some names where i can invest the same.

Vetapalem Sridhar answers, Hi, it is best to avoid child specific schemes, as they generally have higher costs associated with them. The reason is the it is easier to sell such products to parents on an emotional basis. It is best to invest in regular funds, and ear mark them for ur child (discipline is required to do this). As there r still around 15 yrs before u need the money for ur child, I would suggest that u invest into Mutual Funds this amt regularly. U can look at a fund like HDFC growth, Reliance Vision, Sundaram Select Focus, DSPBR Top 100, etc...

DRSHETTI asked, I wish to invest 100000/- per month FOR NEXT 5 YEARS 20000 each in BANK FD/EQUITY MUTUAL FUND/SMALLSAVINGS/ GOLD / SHARES large cap is this asst allocation ok ? i am 49 yrs

Vetapalem Sridhar answers, Dear Dr Shetti, the asset allocation for u would depend an a number of factors. A 40% each in equity and Debt and a 20% allocation to gold looks gud. But to know which is the best asset allocation for u, the first step is to know what r ur objectives in life and then evelaute ur current financial state. Would suggest that u put effort into working out a Financial Plan for urself.

dd asked, sir guide me to invest in the MF between reliance vision and reliance growth. which will be better for long run?

Vetapalem Sridhar answers, Reliance Vision has a large cap focus, whereas Reliance Growth has a midcap focus. Both follow different strategies and it is not possible to know which will outperform the other over the long run. The choice of fund should depend on the type of portf that u r building. Reliance Vision is a mor stabler fund whereas Reliance growth is a more aggressive fund.

Anand asked, Hi Sridhar, My current portfolio is as follows:- Life Insurance Premium Anually:- 35,000 ULIP:- 25,000 Mutual Funds:- Reliance Growth - 1000/PM HDFC Gwoth:- 1000/PM BNP Paribas Tax Saver - 1000/PM 5*1 Year FD:- 50,000/- I am now planning to invest in Gold ETF's and Direct Equity to get some good gains and balance my investment with some risk gains. Please suggest if this is right move or should I invest somewhere else? My current Net take away is 27K/PM and my age is 23 years. Thanks

Vetapalem Sridhar answers, Hi Anand, u seem to be doing gud. It maybe better to take up a TERM Insurance plan for ur life cover needs and re-evalute ur insurance based investments. At this stage, bulk of equity investments should happen thro the mutual fund route. U should start direct equity investing with a smaller sum and for the next 2-3 yrs focus on learing about how the direct equity investing system works. During this time also learn how to evaluate and pick gud stocks. Gold is a gud idea.

aROHILLA asked, what is best term insurance plan ?

Vetapalem Sridhar answers, A suitable TERM insurance is something which has competitive cost and is a name that u r comfortable with. Some of the options u can evalute are Reliance TERM Plan, Kotak TERM Plan, SBI Shield, ICICI Pru Lifeguard WROP, etc

Aravindh asked, How to start investing in Mutual Funds online for NRIs. How to prepare myself interms of documentation to start investing in mutual funds.

Vetapalem Sridhar answers, Hi Aravindh,there are 2 methods to do this. Register for an online securities account from one of the new generation banks (ICICIDirect, HDFC Sec, etc) or online Brokers (Kotaksec, etc) and invest into MFs online thro this system. The second method is to first invest with a mutual fund by filling up a form and a Cheque and getting a folio number generated. Once the folio number is generated, u can apply for an online access (PIN) by filling up a Online Access form. Once u recieve the PIN u can setup an online account with the respective Mutual Fund and do all transactions online using this access. U can do online buying using ur netbanking account. Not all Mutual Fund have online access. Some funds which offer the online facility are - Franklin Templeton, Reliance MF, HDFC MF, SBI MF, etc. Also not all banks r yet linked up with the mutual funds for online buying.

RKSINGH asked, PS ADVICE ABOT MY FINANCIAL PLANNING INVESTED RS 8.0 LAKHS IN PPF IN LAST 10 YEARS AND IN LIC POLICIES RS 8.0 LAKHS IN LAST 8 YEARS( N3 POLICIES TERMS) INCOME RS 7.0 LAKHS AND SAVING APPROX 3.5 LAKH. PS ADVICE ABOT FUTURE PLAN

Vetapalem Sridhar answers, Dear RKSingh, u have primarily invested into tradition investment options. To build wealth in the long run it is important to have a suitable asset allocation strategy in place. It is essential to have some part of ur investments into equity investments. To this end I would suggest that u should start investing into equity MFs. U can look at options like HDFC growth, Reliance Vision, DSPBR TOP 100, Sundaram Select Focus, etc. Also if u do not have adequate Life Insurance Cover, u should take up a TERM Cover.

adarsh_anchal asked, Hi, I want to invest 40000 per month. Which are the best investement options?

Vetapalem Sridhar answers, Hi, how investments should happen would depend on ur current Financial State, Cash Flows and Objective in Life. Based on these factors u should evolve a suitable asset allocation plan. First step is to have an adequate TERM Cover in place and then building a contingency fund. Once this is done only then regular investing should be the focus.

gsmallesh asked, which type of debt fund is best for STP with respect to safety ,return and tax liability.is weekly/daily option is better than monthly for STP

Vetapalem Sridhar answers, If this is the income which is support ur living expenses, then it is best to maintain the money in a Liquid or a Floating rate fund from where a Monthly STP is done. Tax Liability may not vary much, but it would be easier to calculate tax liability if there r fewer transactions.

sagar asked, what is the best health insurance (mediclaim) plan in the market for me and my wife along with my parents which do not have much *Conditions Apply

Vetapalem Sridhar answers, Hi Sagar, there are a number of options available in the mediclaim space. If u r looking for a family cover, then u should evaluate a Floater Cover which covers all members of ur family. U can look at ICIC Lombard Floater as an option.

krish1 asked, Hi Sridhar, is it advisable to invest in ULIPs in current market scenario? and how to build a good Mutual Fund portfolio

Vetapalem Sridhar answers, A Mutual Fund Portf should be built based on the type of investing that u r doing. Primarily basics of Mutual Fund investing suggests that the core portf should consist of large cap diversified funds. To this end u should pick 2-3 large cap diversified funds like HDFC Growth, Reliance Vision, DSPBR Top 100, Sundaram Select Focus, etc. Once this is in place and u want to add an aggressive fund u can look at adding 1 or 2 midcap focus funds. U can look at SBI Midcap, Sundaram SMILE, Reliance RSF, etc. Sector funds is best avoided, unless u r a specialist and understand a specific sector well.

qqq asked, hi Vetapalem, Instead of investing Pension scheme of Life insurance (whose charges are too high), I chosen to invest in UTI Retirement benefit Pension (RBP). Is it a good decision?

Vetapalem Sridhar answers, It would better to invest the money into a regular Mutual Fund instead of a specific RBP plan. U should consider a large cap diversified MF like Reliance Vision or HDFC growth.

dolly asked, I want to save 5000 per month,can u tell me which way will be the better way to save!

Vetapalem Sridhar answers, Hi Dolly, it is imp to put effort into learing about investing and various investment options. Spend time towards this. Of the 5K that u plan to invest, evaluate what part of this money u can invest with a 5-7 yrs horizon. This money u invest into a Mutual Fund thro a SIP. The rest of the money should be collect into ur bank and when it becomes sizable do a FD of it.

Sumit asked, Dear Vetapalem, I would like to invest for my Kid's future who is 3 months old. What would you recommend a plain Mutual Fund Index fund or an ELSS (as ELSS take care of my tax planning too) for the equity exposure? This is besides PPF and insurance. Thanks in advance

Vetapalem Sridhar answers, Dear Sumit, it is definitely a gud idea, as it helps u fulfill both ur needs by investing in a ELSS fund for ur child's future. Go Ahead.

ram asked, Hello Sridhar sir, I want to invest 1 lakh per year (for five years) towards my child. Can you please suggest me to how to go about this.

Vetapalem Sridhar answers, Dear Ram, I would suggest that u invest in a large cap fund like HDFC Grwoth, Reliance Vision, Sundaram Select Focus etc with a 5 yrs horizon. Do not worry about short term volatility in the mkts.

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