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'Am young, can take risks: Where to invest?'
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July 10, 2008

Is it the right time to invest in equity and mutal funds if you are young, willing to take risk and have a long-term investment horizon of 7-10 years?

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Where should you invest if you satisfy the above criteria? What role does life insurance play in your overall long-term investment plan? What should be the right asset allocation to beat inflation and yet earn decent returns?

In a chat with Get Ahead readers on July 9, 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.


Mr. Gosavi asked, Hi.I hav 3 queries. 1. Hows Birla sunlife dream plan. I hav taken it for 25L cover for 25 yrs (my age is 25) at a premium 7k/annum. 2. I hav read in newspapers that property prices will be down by 15-20%in Mumbai (As in delhi its reduced) but in Mumbai prices are not coming down. I want to purchase a flat for residential pupose in Navi Mumbai.r u able to see any correction in Mumbai property prices.3.From last 3- 4 days we are seeing mkt is going up. so can we say the bearphase is over. should I again start investing in mutual funds. Pl answer. Thanks.

Vetapalem Sridhar answers, Hi! 1. In Birla Dream Plan getting a 25L cover for 25 yrs with an annual premium of 7K is not possible. Plz recheck� 2. Like I hv already mentioned in my past chats, it would make sense to wait for a couple of mths before u buy a property 3. Nobody can predict the mkt with certainty. In hindsight we can say that bear mkt was over or that it started. The best way to create wealth in the long term is to invest regularly with discipline with a long term focus without worrying too much about where mkts r going in the short term.


Pavan asked, Hi Sreedhar, good afternoon. I started investing 10K pm through SIP from last few months. My current portifolio has the following funds Principal TaxSavings (15%) HDFC [Get Quote] TaxSaver (15%) HDFC Equity (20%) Reliance [Get Quote] Vision (15%) DSP ML Top 100 (15%) Sundaram Select Focus (20%) Do you have any suggestions/recommendations on the above distribution? Still i can invest 2-4K more per month. Can you suggest suitable funds so that my portfolio is perfectly balanced. I'm 25 Yrs old, i can take risk to certain extent. My investment horizon is 3-5 Yrs. Thanks In Advance.

Vetapalem Sridhar answers, Hi Pavan, I think u hv done a gud job of creating a well balanced portf. Continue with the existing funds. Also do not increase any further funds, distribute the additional money betn the existing funds itself. A 5-7 yrs horizon would be more appropriate.


AmitG asked, Hello Sridhar, Can you suggest some Mutual Funds that are predominantly large cap in nature. And, what should be the quantum of allocation in them looking towards a 5 to 10 years growth option plan ? Thanks and Regards.

Vetapalem Sridhar answers, Some of the well managed Large Cap funds are HDFC Growth Fund, Reliance Vision, Sundaram Select Focus, Franklin Bluechip, etc...Allocation would depend on individual circumstances and objectives. But of the equity part of ur investments a MINIMUM of 60% allocation to Large Caps is generally advisable. U can expect reasonable returns (say around 15% annualised) with a 5-10 yrs horizon.


Unni asked, Can you please tell about MaxNewYorkLife plocy called "Life Invest"? I'm planning to start investing 10K per mnth for next 10 years as part of my retirement solution.

Vetapalem Sridhar answers, Hi Unni, it may be more advisable to invest into a Mutual Fund thro a SIP to build funds to take care of ur retirement needs. For insurance cover u may consider a TERM Insurance Plan.


hari asked, Hi,I have got two jeevan anand LIC [Get Quote] policies worth 5 lakhs each for which I am paying 28650/-, and 20250/- respectively. I have got a home loan of 10 lakhs taken mid last year, and the EMI at present is 11366/- for 15 years.My take home salary per month is 42000. My Monthly expenses come around 17000/-. I have also got a car loan worth 4000/- per month.I am investing 40000/- per year in ULIP's(LIC-MarketPlus-Growth). Let me know, where else can I invest my remaining money.

Vetapalem Sridhar answers, Hi Hari, first get urself an adequate TERM Insurance cover for a 10-15 yrs tenure. U can look at options from SBI [Get Quote] Shield, ICICI [Get Quote] Pru LifeGuard WROP, Reliance TERM Plan etc. Once u do this u can make ur Jeevan Anand LIC policies paid up. Then from ur surplus mthly savings do a SIP into 3-4 funds with a 10 yrs plus horizon. This would help u create more wealth in the long term.


Vicks asked, Sridhar, I had invested 40k in ELSS, 25K in ULIP and 25K in Insurance and 10K in PPF last year. Can i continue with the same this year too?

Vetapalem Sridhar answers, Hi Vicks, I hv a simple Q for u: What is it that u expect from the above investments? If u r satisfied with ur answer then u can continue with the same. It seems that u have invested the money in different places without much thought as to why u r investing there. The first thing that u should do is to first list down ur objectives and needs. These should be the guiding factors to arrive at a plan which would help u identify where u should invest the money. This would ensure that u invest in places which would help u meet ur future objectives.


Pradeep8 asked, Are these SIP MF are ok to invest. ICICI Pru Infrastructure, DSP Merrill Lynch India TIGER fund, SBI Magnum global Fund, Birla Sun Life Equity fund, Reliance Diversified power sector fund

Vetapalem Sridhar answers, Hi Pradeep, Most funds picked by u r thematic/sector funds. Fundamentals of investing suggest that u should first build a gud core portfolio of well diversified stable funds (eg: well managed large cap funds). Once this is in place then u may look at adding some aggresive funds based on risk appetite (eg: mid and small cap funds). Once this is done if u want to increase exposure to a specific sector due to ur superior understanding of that sector, only then would it make sense to invest in that specific sector fund.


biml asked, Hello Sir,Good afternoon..hope u will answer my question..I want to invest in Sundram BNP taxsaver fund in SIP mode for long term..is that a good fund..Please answer my question.. i will be very thankful to you..

Vetapalem Sridhar answers, Hi, Sundaram Tax Saver is on my recommended list along with Principal Tax Savings and HDFC Tax Saver. But we should be aware that no one can predict with certainity whether these funds will be superior performers in future or not. But we can say that the Funds r run by capable Professionals.


varun asked, I am 27 years old with no liabilities. how should I invest Rs1 lakh investment for tax saving. should it be in Insurance, PPF , Pension Plan , NSC or any other instrument.

Vetapalem Sridhar answers, ELSS (Tax Saving) Mutual Funds would be the best option if u have a 5-7 yrs horizon of investment. Before u get married u should take up an adequate TERM Insurance Plan.


ramani asked, Hi, I want to invest 5lacs in MF taking into consideration of 3years time horizon. Please suggest balanced MF portfolio which atleast yeilds 15 % ROI.

Vetapalem Sridhar answers, Dear Ramani, It is not really possible to say where the mkts will be in 3 yrs time. Though there is a very gud chance that u may get ur expected returns in 3 yrs time, but then u should be aware that there is some probability that mkts may not deliver those returns (which is the risk for u). Evaluate the consequence of what will happen if u do not get the expected returns. If it is acceptable then u can invest the money. The best option is to invest the money with a 5-7 yrs horizon...


SalariedEmployee asked, Hi Sridhar! I have been investing in Franklin Templeton Prima Plus and Bluechip MFs under SIP. Is it WISER to withdraw immediately with what I've got OR continue to invest and wait for the markets to recover?

Vetapalem Sridhar answers, The more ur decisions are based on market movements, the more certain u r to not make returns thro equity based investments. The reason is that we generally feel like selling when mkts go down (when ideally we should be BUYING LOW). And we fell like buying when mkts go up in anticipation that they will rise higher. Most people who are able to build wealth over the long run follow a simple process of investing. They invest regularly with discipline and hold onto their investments for a long time. This is a sure shot way to creating wealth. We must realise that the Market as a whole is smarter than an individual. So the probability tht u can be WISER than the mkt is very low. So continue to invest regularly and remain invested till mkts go up and reach newer highs.


arun asked, i awnt to invest in a pension plan .I am 44 yeaars old

Vetapalem Sridhar answers, Hi Arun, 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.


SandeepKumar asked, Are FMPs good vehicle for long term investment? What are good FMPs available now? Will it come under tax planning?

Vetapalem Sridhar answers, FMPs r highly tax efficient investments. Currently the post tax yields on a FMP of more than a yr is around 9.5 to 10% p.a. Though they are an ideal option, there is a RISK that we should be aware of. The Risk is the risk of DEFAULT. When economy faces problems, certain companies are not able to meet their liabilities and hence they may default. So it is very important to first understand where the money is being invested via the FMPs. If all paper are of high quality then there is no problem. But then to be sure of that u should do a thorough study before investing.


mahernoz asked, Hi Sridhar, i have an investment horizon of 5 years, which investment should i make stocks, Fixed Deposits or Gold, what looks good for 5 year horizon.??

Vetapalem Sridhar answers, Dear Mahernoz, Stocks should be the ideal choice. This does not mean that u should put all ur money into stocks. A sutiable Asset Allocation is essential to be able to create a balance between returns and financial stability. Debt/Gold plays the role of bringing stability in ur Financial Life. Plz read thro the following link to understand better. Asset Allocation - Secret to Financial Freedom


Daboo asked, I am 53 years and want to take VRS after 1 year. My monthly expenditure are Rs.20 thousand/month. How much money required to sustain this for another 30 years.

Vetapalem Sridhar answers, Assuming that ur cost of living rises by 7% each year u would roughly need around 40L currently to maintain a lifestyle cost 20K p.m in current terms. This above corpus should grow at a rate of 12% for the first 10 yrs, then at a rate of 11% for the next 10 yrs and finally at a rate of 10%. With a 50:50 debt equity ratio u can maintian the above need returns.


arunr asked, Hi , I am 28 year old amd most of my investments are in equity , i feel abou 95% , should i invest more in debt and other related insturments, if yes could you suggets some good mutual funds for it

Vetapalem Sridhar answers, Hi Arun, extremes in any direction is not gud. U should work out a suitable asset allocation based on ur individual circumstances. Being young you can afford to take higher risk. Also if u find that the allocation to equity is on the higher side, dont sell equity to rebalance, it would make more sense to reduce equity investments during the coming months and instead invest into debt to create a sutiable asset allocation. For the debt part currently, FDs are a more suitable option.


sundar asked, I am 29 years old . I am investiong Rs 1000 in each mutucal funds through monthly SIP in following mutual funds like DSP ML Top100 , Magnum Contra, Kotak opportunities, Sundaram SMILE, Sundaram Capex opportunities , SBI Magnum TAx gain and Sundaram Tax saver . My investment time horizon 15 to 20 years . Please advise whether My selection of mutual fund is correct or anything I will change ? Please give your advise

Vetapalem Sridhar answers, Hi Sundar, the portf is more towards the aggressive side. Would suggest that u replace Sundaram Capex, by sundaram Select focus, and just invest in 1 tax scheme. Over 15-20 yrs u should be able to build wealth.


Mahendraa asked, Are the index funds good for retirement planning( say 20yr)

Vetapalem Sridhar answers, Yes they are definitely gud for retirement planning. But in developing mkts like India, as there are a lot of opportunities, regular diversified funds, over the coming few years, have a greater chance to outperform index funds. With ur strategy u should be able to meet ur objective of retirement. The only care that u should take is to not compare the returns of index funds with regular funds.


Srikant asked, I want ot have Rs. 50 lacs after 10 years. How much would be required to be saved monthly to achive this and where to invest. Kindly advice

Vetapalem Sridhar answers, Assuming a 15% annualised returns thro equities, a 18K mthly investment for the next 10 yrs would enable u to accumulate around 50L. A SIP into 3-4 diversified equity funds should enable u to meet ur goal.


imran asked, My monthly salary is Rs 40,000 and I have done my investment with the best of my knowledge. Investment details; Loan - 20 Laks for 20 years EMI - 20,000 LIC - 27,000 Mutual Funds, Rel Pow Sec - 3000 HDFC Top 200 - 2000 Franklin pension plan - 2000 Is there any source of improvements in my current planning? Please give me your valuable feedback

Vetapalem Sridhar answers, The first thing that u should do is to get a TERM Insurance Plan. Look at SBI Shield, Reliance Term Plan, ICICI Pru Lifeguard WROP. Stop the SIP in Franklin Pension Plan. Instead u can select one of their other funds like Franklin Flexicap or Franklin Prima Plus. Do not add any Sector funds to ur portf.


abhishekdhulia asked, Hi Sridhar, How do you see the health of Indian stock markets and economy in next ten years, say by 2020. How is the future of equity till 2020. thanks

Vetapalem Sridhar answers, There is tremendous potential in India as a country which will evenutally get reflected by the rise of the Indian Stock Mkts over the coming 10-15 yrs. There will be gud times and bad, but over the long term u can make very gud returns to investing into India equities. If somebody really invests wisely with discipline, a lot of wealth (maybe enough to achieve Financial Freedom) can be built in a 10-15 yrs horizon.


kartik asked, HI! Sridhar . i am new in investment. i want to invest in stock market. can you suggest me which medium is good . like ICICIDIRECT.com , SHAREKHAN.com

Vetapalem Sridhar answers, Hi Kartik, each of the mediums comes with some gud and some bad aspects. U need to evaluate and see which one u feel more comfortable with. For some ICICI is a gr8 system due to convenience, but for others it maybe a medium which has higher costs and hence not suitable. Talk to the respective org. and find out about costs and the services and evalute based on wat it is u r looking from them.


dg asked, Hi all, I want to start SIP of Rs 5000/- per month for a long term perspective (to create fund for my child). So far I have sorted out below funds, please let me know if these are good funds. 1) Rel. Vision/DSP Top 100 2) Rel. Growth 3) HDFC Prudence 4) SBI Contra I want to avoid thematic funds as of now as they are effected by this crash. Pls let me know if these are good funds to invest. Also let me know if you have any other funds which will give better results.

Vetapalem Sridhar answers, Pick 2 funds to invest for ur child. The funds mentioned by u r gud. A balanced fund (Prudence) may not be the most ideal option. Also do take up adequate TERM Insruance Cover to protect ur family in case of an eventuality. Plz read thro the following link to know more about investing for ur child. Investing for children A Slide Show, click NEXT to read thro.


nm1 asked, Hi Sridhar, I am having a credit card by one bank. They are offering insurance for 20L for a premium of Rs. 2000p.a. Shall I accept it. On what terms? Pl. suggest.

Vetapalem Sridhar answers, Hi, wat insurance are they offering u? I think it would be better that u first evalute ur needs and arrive at the amount of insurance that u require. Once u do this then find out a suitable TERM Insurance policy to meet this need. It maybe wiser to pass this offer.


Dilli asked, Hello sridhar, Good afternoon. I started investing 14k PM through SIP for last two years. My current portfolio has the following funds, Fidelity Equity (20%) Franklin Bluechip (20%), SBI Magnum Contra (20%), Reliance Growth (20%), HDFC equity (20%). My age is 31 years with two kids (1 Month and 3 years age). Do you have any suggestions for me?

Vetapalem Sridhar answers, Hi, get urself an adequate TERM Insurance Cover. U hv a reasonably gud portf. Continue investing thro the above funds. Do not invest into any child specific investment plans. Build funds thro the above funds itself. Invest with discipline and dont worry about short to medium term volatility in the equity mkts. Over the long run u will definitely make reasonbaly gud returns.


TSK asked, Hi sridar, I have one starnge question for you. Please clarify, if you dont mind. I have taken an LIC Anand policy for 15L for 15yrs premium. When I chat with friends, i came to know that investing the same money in equities for the same period of time, we will get multiple times of return, isnt? which is better?

Vetapalem Sridhar answers, Ur friends r right. Over 15 yrs by investing in equities u will end up with multiple times the money that u would hv accumulated in the LIC Policy. But then u should take a separate TERM Cover to cover for the risk.


Aashna asked, Hello Sir, Can u help me which plan is better for insurance from LIC's Jeevan Saral, Jeevan Ananad or Jeevan Sathi?

Vetapalem Sridhar answers, If u r look at a Insurance Cover then from LIC, Anmol Jeevan and Amulya Jeevan would be better options. If u look at building funds for future, then Mutual Funds would be a better option.


ldadlsjflsdjf asked, when is end for this type of inflation growing and when will be the stability in the markets

Vetapalem Sridhar answers, Inflation is calculated keeping previous years prices as the base. Assuming prices remain at current levels, then we can assume that inflation figures coming out for the next 8-10 mths would be in double digits. Once the base effect increases we will again see inflation coming down. A lot of it is also dependent on OIL and the Fiscal Position in India.


namastetapan asked, HI, i am aged 30. I have a home loan of 18 lacs and the EMI is 16000 per month from HDFC Bank. I have also taken insurance policy of the same amount inorder to provide security in case of death. I have Life insurance of 3 lacs 2 endowement policy and one if regular income(every 4 year). For all the policy i pay a total of 25000 as premimum. I also have gone in for Pension fund from ICICI where i am investing 10000 per month.The plan is for 20 years. I have invested app 1 lac in stock market and my time horizon is 3 to 5 years. I had a SIP from Fidelity Tax plan for 2 years. Please suggest whats missing from my portfolio. I can invest 10000 per month.

Vetapalem Sridhar answers, A small Q: Why r u investing in a Pension plan for 20 yrs and in stock market for only 3 to 5 yrs? Be aware that in 3-5 yrs there is a risk in stock mkts, but with a 20 yrs horizon there is a greater probability that u will make better returns thro equities investments as compared to a Pension Plan. Increase ur Insruance Cover thro an additional TERM Insruance Plan. Stop the 2 endowment policies once u have the term plan in place. Start a SIP in 2-3 funds with a 20 yrs horizon to build wealth.


pksuri10 asked, Hi Sridhar:My net take home is around 1.25L apart from 18K as PF and I have loan of around 23L for which EMI is 21000. I have pension policies(10K) for me and my wife and 25K pa policy for my child. I have around 10L in cash/inv.My monthy expenses are around 25K. I save 50K pa in PPF Ideally how much should I save and where to invest seing the current scenarion in equity market. If I go for SIP, which MF should I opt for.

Vetapalem Sridhar answers, Hi, u r in a strong state financially. If u plan well there is no reason why u cannot achieve Financial Freedom in 12-15 yrs time. First get urself an adequate TERM Insurance cover. U r left with more 50K approx. Of this atlest 35 to 40K should be invested into equities with a 12-15 yrs horizon. This should be a step in direction to achieve Financial Freedom.


joy asked, what is the best investment option for a short term of 3-6 months. My objective is to preserve capital and beat inflation. I have a surplus of 5 lacs which I want to save for my down payment for my new home which I am planning in 3-6 months. pls suggest.

Vetapalem Sridhar answers, Best option is to invest in a LIQUID Fund of a Mutual Fund. U cannot beat inflation.


advise asked, Dear Sridhar,Hello!!!I have put my questions on this chat before also.I hope I will positively get reply today. I am 35 with good risk appetite for 5 years atleast. I have right now SIP of 8000/- and would like to increase upto 25000/-Rs,ie wish to add 17000/-Rs more per month (Preferably in equity diversified fund).I have SIP of 2000 in Reliance growth,1000 in ICICI Service industries and 5000 in Reliance RSF fund. Please advice regarding SIP. Waiting for your response this time. Thanks a lot Sridhar.

Vetapalem Sridhar answers, U do not have a gud portf in place. U need to build a portf of 5-6 funds to create a reasonably balanced portf. Would suggest that u add 2 large cap funds and replace ICICI services fund by a midcap fund.


Vetapalem Sridhar says, Thats all for now Friends...Will be back soon!


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


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