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Financial freedom: You CAN achieve it!
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December 20, 2007

Do you know what is meant by achieving financial freedom? How can you know if you have achieved financial freedom for yourself or your family?

Will earning a crore of rupees be enough for you to achieve financial freedom? What will be the value of Rs 1 crore after 20 years?

How much of your monthly income should you save and invest to become financially dependent by the time you retire?

In a chat with Get Ahead readers on December 18, 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.

Part I: How to build an ideal mutual fund portfolio


sameer asked, hi for a 32 year old with a wife and daughter what is financial freedom....1 crore/10 crores in assets..how would u define financial freedom?

Vetapalem Sridhar answers, Financial Freedom: The state in life where u have accumulated enough Financial Resources, that would fund ur cost of living for ur entire life. U do not have to work for money so as to lead ur life.


kotesh asked, hi my income is 4.5 lakhs/annum. i wanted to invest ulip linked insurances.......which one is the best?

Vetapalem Sridhar answers, Best is just a relative Term insurance plan. If some product is able to satisfy ur need, then it is best for u. If the same porduct is not able to satisfy your needs, then it may not be the best choice. First define/ write down ur need or objective. Then go a find out which product best meets this need/objective. This will ensure that u will always make a more informed and better decisions which would help u achieve ur needs/objectives.


sd asked, Hello sir can u please suggest me any mid cap and small cap fund as i am having investment horizon of 5 yrs?

Vetapalem Sridhar answers, SBI [Get Quote] Magnum Midcap, Franklin India Opportunities Fund, JM Emerging leaders fund, ICICI [Get Quote] Emerging STAR Fund are some of the better managed funds in the mid-small cap category.


geo asked, is it advisable to invest in a fund which have navs of 100 plus like reliance vision and hdfc growth?

Vetapalem Sridhar answers, Most people prefer to invest in a fund which has a low NAV. This is a reason why most of them prefer NFOs which offer units at Rs.10/unit. It is not true that higher NAV means that the fund is more expensive. Even if u invest in a fund with NAV of Rs 10 or Rs 100, if both invest money into stocks, they buy stocks at the current mkt price. Assuming that both funds just buy reliance share. If reliance share goes up by say 10%, then in first fund the NAV would go up from Rs.10 to Rs.11, whereas in the second fund the NAV would go up from Rs.100 to Rs.110. Both would give identical returns.


ajith asked, Sir, I am an NRI, presently working in Kuwait. I am keen on investing my funds in NRE fixed deposit scheme in India as i have heard that there is no tax on the interest received or the capital amount invested. What would be the maximum and minimum limit for such deposits? Also, I have noticed that interest rate on NRE fixed deposits has fallen from above 5% to below 4% in the last couple of months. Will the interest rates continue to fall further? I would be grateful if you could advise me on this matter as its important for me to consider the options before arriving at a decision.

Vetapalem Sridhar answers, Hi Ajith, No tax being charged should not be the criteria for selecting a investment option. The Q that I ask is why do u invest? Is it to save tax or to make returns? I presume it is to make returns. If this is the objective, then u need to evalute which will be the best option to generate higher post tax returns. If u as an NRI invest into equity Mutual Funds and hold the fund for greater than 1 yr, then there is no tax on the returns as per current tax laws. I would suggest that u invest into Indian equities with a 5-7 yrs horizon.


crorepati asked, the present value of a crore after 20 years is close to nothing?

Vetapalem Sridhar answers, If we assume that cost of living rises by 7% each yr, the value of 1 crore after 20 yrs in today's terms would roughly be around 28 Lacs.


Venkatesh asked, How to attain Financial Freedom? Currently I ensure that I save about 45% of my Monthly income and these 45% is equally distributed across Stocks, Mutual Funds and Commodities. How can I improve this in order to attain Financial freedom?

Vetapalem Sridhar answers, If ur cost of living is Rs.55 and u save Rs.45 out of a salary of Rs.100, then with the asset allocation mentioned should be able to accumulate enough financial resources in around 15 yrs that would support u for the rest of ur life. i.e. u would have achieved Financial Freedom.


tatskevv asked, How much can one expect from Mutual funds market (Diversified Markets) in the long run say 5 years here after?

Vetapalem Sridhar answers, A 15% annualised return over the long run is a realistic expectation. There may be intermittent volatility in the mkts, but if u remain invested, over the long run u should make reasonable returns.


Soumya asked, Hi Sir, How are U? My Carry home amount is Rs 30K per month. Pls clarify- 1) I want to take a house within 15 month with budget 20-25 lacs. Where and how should i accumulate fund for down payment? 2) Advice any good plan for my 4 month old baby girl for her education and marriage -- what do u suggest for Birla Children Dream Plan? 3) Should i invest in a mutual fund SIP -- if yes in which plan? Thanks in advance sir, Please MUST REPLY.

Vetapalem Sridhar answers, Dear Soumya, I am doing gud... 1. U have not mentioned details about ur husband. For a 25L loan u would roughly need to have around 4-5l as down payment money. U should collect this fund into a bank FD as u need the money in a short time. 2. I had written a comprehensive article on investing for child, Plz read thro it carefully. Link below. It is a Slide Show, so click NEXT to read thro. U should never invest into a Insurance based investment option for ur child. http://specials.rediff.com/getahead/2007/aug/07sli1.htm 3. I would suggest that u start ur MF investing with HDFC [Get Quote] Growth Fund thro a SIP.


Debasis asked, Hi sir, I'm Debasis from kolkata. I'm a software engineer earning 42000 (net) per month. and invest 20000 per month in PPF. Please advice me how should i invest which will be more profitable. Thanks.

Vetapalem Sridhar answers, PPF is a 15 yr investment option. Though a tax free 8% return is attractive, over the long run u can make higher returns thro investing into equities. Investing into higher growth assets is a necessity. Plz read thro an article on asset allocation that I had written to understand further. http://www.rediff.com/getahead/2007/jul/03fin.htm.


ShobhitAgarwal asked, Hi, well thn u for providing this open forum for discussion. My name is Shobhit and currently im located in Muscat. I want to invest some of my money arroun 25k per month bt from here i find it difficult to invest in India..Pls Advice.

Vetapalem Sridhar answers, Hi Shobhit, Investing into direct shares is a little bit difficult. But to invest into equities thro the Mutual Fund route is relatively easy. U need to have a bank account in India, an NRE Account too would do. The only other requirement is tht u need to have a PAN card. For the first time u would need to invest by physically signing some forms to invest into Mutual Funds. U can then apply for online access with most mutual funds, which would enable u to do online transactions including that of online purchase by transfering funds thro net banking.


rajeshkumar_221@rediffmail.com asked, Hi, I have a question for you. There are very few good experts like you who have a deep knowledge in MF and likewise, but I have noted that none of them suggest a MF which is common to all of other experts. All say that it is Number 1 according to them but the same may not find place in others' protfolio. Can you suggest regarding this and how should a common investor like me be able to invest successfully?

Vetapalem Sridhar answers, Dear Rajesh. Each expert may have his or her own method of evaluating funds. As there are nearly 2000 different funds that exist in India, it is but natural that the choices may differ. I had written a comprehensive article which was published as a slide show on rediff.com on - "How a Common Investor Should Select Mutual Funds for Investing". I think ur Query would be answered if u read thro the link below. Click NEXT as this is a Slide Show to read thro.... http://specials.rediff.com/getahead/2007/oct/12fund1.htm


murthy asked, I am 58 with my wife 54, completely hale and healthy; no family liabilities and possess properties worth 1.5 crores worth urban today; receiving about 25k as house rents; Planning to retire from govt service, that would fetch about 25 lakhs and 25k pension per month. We live like the real middle class. Is that enough for another 15 years for us to live reasonably well?

Vetapalem Sridhar answers, Continue to always hold the real estate, whose income will keep rising with inflation. It is more than sufficient to lead a pretty comfortable life for more than 30 yrs.


manuj asked, can any one give me few tips on how to get rid of credit cards debt?

Vetapalem Sridhar answers, First cut all ur credit cards into 2 pieces. This would ensure that u would not use them in future. Once u do this finish off those debts which r small ASAP. Talk to the credit card company where ur outstanding balance is high to get it converted into an EMI.


Vetapalem Sridhar says, I have run out of time....hope that the answers do help u learn and become more aware about investing....Will catch up soon to answer more queries....


Part I: How to build an ideal mutual fund portfolio

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


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