Is it a good idea to invest in debt-oriented mutual funds as the interest rates are rising? Or is it a good idea to invest in fixed maturity plans?

Should you hold on to your investments in mutual fund units even as the stock market keep falling? Is this the right time to buy mutual fund units to take advantage of a falling market?

How should you plan for the better future of your family?

In a chat with Get Ahead readers on April 4, 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 create wealth for your future

santosh asked, Sir, My Net salery is Rs.16500.00.My age is 28Yrs. I want 5Lacs after 5yrs. how much amount i must saved? Pls give me the Different module of investment. How I Can achive this thing?

Vetapalem Sridhar answers, Hi Santosh. If u invest 6K p.m. into a SIP each mth for the next 5 yrs, u should end up with more than 5.5 Lacs, assuming that the money grows at 15% annaulised. U can do a SIP into HDFC [Get Quote] Growth and JM Emerging Leaders Fund.

Amji asked, Sir, I am 38 and my wife is 32. We have a 8 month old daughter. Our total income p.m. is 60,000. Our main asset is our 1bhk house into which we put in all our savings and it is now valued at 40 lacs. I pay 14500 p.m. towards EMI and more 20 yrs to go on this. I plan to retire at 55 & my wife at 50. Our savings as on today is 1 lac in ICICI [Get Quote] Prudential; Life Insurance -- 6 lacs for me and 2 lacs for my wife. We need 4 crores at retirement (considering inflation) to cover education and marriage of our daughter, a good post-retirement life for both of us and buy a 2bhk flat. How should I proceed to achieve this? Kindly advise since I do not have any knowledge of mutual funds, ulips, stocks?

Vetapalem Sridhar answers, Hi Amji. U must immediately first take up adequate TERM insurance cover. This amt should cover all liabilities as well as should be sufficient to provide financial support to ur dependants in case something happens to u. Maybe 4 Crore is on the higher side based on info provided by u. Once u have the Term Insurance in place, u should start a SIP into Mutual Funds like HDFC Grwoth, Reliance [Get Quote] Vision, JM Emerging Leaders fund, etc with a long term horizon to build wealth.

trideep asked, Hi Sridhar, i am 28 years of age and am single my take home salary is 70,000 a month, my rentals and other expenses amount to rupees 20,000. I had SIPs of Rs 10,000 a month till Dec 2007, however due to a familiy condition I had to use up all my SIPs and am also saddled now with a credit card debt of 70,000 and a 4 year personal loan of Rs 2,38,000 and my EMI for them total rs 9,000. Please advise me on how to proceed afresh, as I want to purchase a 2 BHK house in mumbai, sometime in January 09. Your guidance would be helpful.

Vetapalem Sridhar answers, Trideep, if ur saving 50K p.m. how did u manage to create the debt in the first place. In the next 2 mths pay off the entire credit card debt first. Let P/L continue for the time being. Build resources into bank FDs to create a fund to pay for down payment when u plan to buy a house. It would be a bad idea to take a P/L to pay for the down payment. U may vary the time of purchasing the house based on by when u can collect enough money to pay for down payment.

DivyaPradha asked, Could you please tell me, what's the problem in having many MFs in portfolio? Everyone says 6-7 are ideal. But I don't foresee any problem. I don't understand the reason as well, as I go thru Financial adviser and agents only.

Vetapalem Sridhar answers, Hi Divya, Suppose u have 1L rupees. Why do you go and invest it in just two or three bank accounts. Why do you not split the money into bunches of 5K each and invest it into 20 different bank FDs. The answer is that there is no additional advantage by putting money into so many bank accounts. Infact it would become a pain to handle so many bank accounts. Similarly 4-6 funds are sufficient to create enough diversification and also to deliver reasonable returns over the long run.

Rahul Ramesh asked, sridhar, I am looking at investing in Debt mutual fund. Can you a few good ones in that. are FMPs and long term funds are same?

Vetapalem Sridhar answers, In the current scenario where there is likelihood of interest rates rising, debt funds may not be the best options. It would be more advisbale to invest the money into Bank FDs, where u can get reasonably attractive rates. FMPs are open only for a very short period (around 5 days), so u would need to get in touch with a Mutual Fund advisor for the same.

Iqbal asked, Hi, I am an NRI & 34yrs having SIP of 2500 each for following funds: 1. DSP ML tiger 2. Reliance Growth 3. Reliance Vision 4. ICICI Prud Emerging star 5. Kotak Midcap 6. HDFC Equity 7. Reliance Equity Opportunities. I would like to invest through SIP for next 3 to 5 years and stay invested for long term for wealth creation. I would like to get your suggestion wether my portfolio is having a good fund or would i have to change. Please send me your replies. Thanks in advance.

Vetapalem Sridhar answers, The portfolio seems gud. Do not add any more funds to the already long list. U may infact look at exiting Reliance Growth and allocating the money between ICICI Emerging Star and Kotak Midcap.

nikhileshmangal asked, Hi, I am an NRI and I have a duaghter of 2.5 yrs. I want to know whether I can open a private discretionary trust in her name and open a PPF account in the trust name. Can I then contribute to that PPF account? Will that be clubbed into my ceiling?

Vetapalem Sridhar answers, I don't think that u can open a PPF a/c in the name of a trust (plz do find out from any SBI [Get Quote] branch). U can open a PPF a/c on name of a minor though where u can be the gaurdian. U can contribute money into the account of ur daughter.

anku asked, hi anku here. my take home is 20k. I wan to invest my 10k. can u please suggest me the broad distribution for these investment means how much amt i should invest in different scheme like fixed deposits, MFs, direct trading to get max of it?

Vetapalem Sridhar answers, Hi, first evaluate ur needs over the next 5 yrs. Estimate any money that u would need to spend over this time. Money for this should be collected into bank FDs. The remaining savings should be invested into equity oriented MFs thro a SIP with a 5 plus yrs horizon of investing. U can look at funds like HDFC Growth, SBI Equity, Reliance Vision etc.

venugopal asked, Hi, I have invested in ELSS fund with the Dividend reinvestment plan. Can I claim the dividend reinvestment amount under the Section 80C? Please answer Thanks Venugopal.

Vetapalem Sridhar answers, Yes. The new units issued under the reinvestment scheme would be locked in for a further 3 yrs.

Nikhil asked, I am 28yrs, married & have 1 kid. My income is round abt INR 50000 p.m. & Expenditure is EMI of 10,000 + 20,000 living expentiture + planning to buy a car with an EMI of round abt 7-8K p.m. pls suggest what is the best option available for investing rest amount (12K p.m)?

Vetapalem Sridhar answers, U should ideally start investing into into MFs thro a SIP. Identify what part of the 12K u can keep invested for a period of more than 5 yrs. Of this amt do a SIP. U can look at funds like HDFC Growth, Reliance Vision, Sundaram Growth, JM Emerging Leaders, etc.

Sreedhar asked, Hi Sridhar, I am 38 with two kids (6 & 1.5), I have just started saving. My financial goals are a house this year, studies of children in 10-15 yrs time. My portfolio Insurance - Pure Life Insurance for 10 Lakhs (8000) , Mediclaim(6000), ULIP for children (20000) per year, SIP in DSPML TIGER (Rs.3000), Sundaram Select Foucs (3000), SBI Contra (2000), Reliance Power Sector (2000), ICICI Infra (3000), PPF (3500 every month) cash in hand (6,00,000). Marked 20,000 for house loan repay and looking for a house in 25-30 lakhs range. Pl advice adjustment in portfolio.

Vetapalem Sridhar answers, U have planned reasonably well. Continue in the same way. But before u take up a housing loan, ensure that u take up additional TERM Insurance cover. U can look at adding an aggresive fund like JM Emerging Leaders Fund or Sundaram SMILE fund to ur portf of MFs over time.

pika asked, Hi sridhar, With the current scenerio when markets are continuously falling, is it good to stay invested in mutual funds or we should come out of them?

Vetapalem Sridhar answers, U have invested in equity mutual fund which carries risk of volatility. Now when volatility has hit, u r experiencing discomfort. This is putting pressure on u to take some action to set things right. There is a sure shot way of winning, ie patience. Let mkts go wherever they want to go. Over the long run they would still recover and give u a decent return. One time trading (trying to sell now and re-entering at lower levels) by taking a call on the mkt movement may not be such a gud idea. Here there is a probability that ur calls could be right or wrong. In case they r right, u would be able to save downside risk on ur existing investment. But if ur call goes wrong then u would be in a much worse state. Be aware of the risk that u r taking and then make an informed decision.

Eagle asked, Can i redeem units from an open ended ELSS fund, at any time? I suppose ELSS have a lock in for 3 years. So how can the ELSS be open ended?

Vetapalem Sridhar answers, There is a lockin of 3 yrs as u r getting a tax benefit. U can invest money and withdraw money whenever you want due to which the fund is an open ended fund. So after 3 yrs u can withdraw money at any time just like any other open ended fund.

Vetapalem Sridhar says, Thats all for now! Will catch up again sometime soon....