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'Financial freedom is a relative term'
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November 22, 2007

Do you know what financial freedom is all about? Is it possible for you to achieve financial freedom as and when you want to?

Is it all about investing in stock markets, mutual funds, insurance policies, provident funds etc? Or is there more to it?

In a chat with Get Ahead readers on November 20, financial planning expert Vetapalem Sridhar answered these and several other queries related to financial planning and freedom for you and your family.

For those of you who missed the chat, here is the transcript.

Part I: Planning your retirement? Consider inflation


swara asked, HI Vetapalem, me and my husband both earn 70k pm. 30k is our emi for home loan. LIC [Get Quote] pol prem pm is 6000 pm. 25k we can save and invets for future. how and where should we invest? to meet our short term and long term goals?

Vetapalem Sridhar answers, Dear Swara, from the figures given by u I deduce that u are able to manage ur life in around 11-12K p.m. If this is real, then u can achieve Financial Freedom within 6-7 yrs. But i think that ur actual cost of living would rise in future. U should look at investing most of the savings into Mutual Funds thro the SIP route. Also do take up adequate TERM Insurance cover (U have a Housing Loan).


Daniel asked, Hi am daniel from tirunelveli..I want to get clear cut idea which option (Growth & dividend reinvestment) will give more returns in mutual fund?

Vetapalem Sridhar answers, Dear Daniel, I have written a comprehensive article on the exact topic Dividend vs Growth Mutual Funds. Plz read thro the following link for clarity on this topic. http://www.rediff.com/getahead/2007/aug/09fund.htm


kamayani asked, Hi Sridhar. I am earning 5 L p.a.I am 27 yrs. old. have a daughter who is 2 yrs. old I want to invest maximum possible amount in her education. Kindly advise how much and in what I should invest in?

Vetapalem Sridhar answers, Hi Kamayani, u should look at investing regularly into a diversified Mutual Fund thro the SIP route. U can pick the following funds for the same -- HDFC [Get Quote] Growth Fund and JM Emerging Leaders fund. I have written a comprehensive writeup on investing for children. plz read thro the following slide show. http://specials.rediff.com/getahead/2007/aug/07sli1.htm


SONIA asked, HI i AM SONIA AND I WANT TO INCREASE MY TAKE HOME SALARY WILL mba & pgdbm HELP ME IN ACHIEVING IT?

Vetapalem Sridhar answers, If u do an MBA from a reputed institute, it would definitely help.


Maneesh asked, Hello Sridhar, I have got a ULIP having a SA of Rs 5 lacs and 2-3 health policies which cover myself, my spouse and both my kids have Sum assured of Rs 3 lacs each for myself and my spouse and Rs 50000 each for my kids. Do I still need a TERM COVER, please advise? MB.

Vetapalem Sridhar answers, Dear Maneesh, each individual has a specific risk (based on his need) that he should cover. In case the income stream is hurt (due to death) then insurance would protect the people dependent on the income and ensure that they r not put into financial discomfort.

Now what r the components to arrive at this risk. Let me put it in points:

1. Any and all the existing liabilities (all loans - personal, vehicle or housing, etc).

2. Number of dependants on the income. It will enable u to estimate what kind of money they would need to survive without ur income. A study and analysis of lifestyle (cost of living) would have to be done for this. This is complex. If ur spouse is earning, then her need (amount of support from insurance) maybe less. Alternatively u should also take into consideration whether a non working spouse will be able to start working and generate some income. Similarly if u have a huge surplus of funds u may not require insurance.

3. Children: A critical factor. Most people start to think of insurance when they have their first child. Here u will need to factor in the amount of money that may be needed till the time ur child becomes independent (he/she is able to support him/herself). Insurance should include money upto the point it is able to support his/her graduation. For further higher eductaion he/she can take an educational loan. Apart from the above imp points there may be other factors too that may have to be taken into account. But it would depend on each individual case.


indermohan asked, hi!' I am doing service and my monthly take home is Rs 18000/ pm what I am doing is depositing Rs. 5000/- in ppf and taking NSE of Rs. 5000/- pm and planning same for another 10 years will it give me financial freedom after 50 years and also investing Rs. 25000/- yearly in good shares?

Vetapalem Sridhar answers, PPF and NSC may not be the best place to create wealth over the long run. Their role is limited to bringing stability to an Asset Allocation plan. It would make more sense for u to divert this money to investing into Mutual Fund SIPs over the long run. To evaluate Financial Freedom would need to know a lot more details.


guest asked, hi i'm 27 yrs old. My monthly expenses are around 25k. what should be my corpus to retire at the age of 35 if I have to maintain the same lifestyle?

Vetapalem Sridhar answers, If u have 80L corpus by ur age 35, it will be able to sustain u till ur age 80 at the current lifestye. Assumptions are that the cost of living is rising at 7% p.a. and the money is invested into diversified MFs, where the money grows at 14% for 10 yrs, and it drops by 1% after every 10 yrs.


Firoz asked, Hi......i hv just taken 2 policies of HDFC Standard Life (UL young Star Suvidha Plus). First is annualy Rs 25000 and other one Monthly Rs 3000 for the period of Ten Years. Please let us know if this is good policy. I'd highly appreciate if you please reply. Thank you......

Vetapalem Sridhar answers, Select the growth option of this ULIP plan. It would really be beneficial if u continue to invest till the end of 10 yrs. If u stop in between then it would not be beneficial.


Ambika asked, Good afternoon sir. This is gowri and im working from past 6 months and my ctc is Rs 1,80,000/-. I dont think my expenses are more as soon as i draw my monthly salary but in the middle of the month, some or the other expenses will come up for which i ll have to spend on them. Im not able to save according to my plans. I'm very confused as i'm in need of a good financial plan monthly. I want to save atleast 75% of my salary every month as i don't have any additional income as of now. I request you to guide me in my monthly financial planning.

Vetapalem Sridhar answers, Dear Ambika, do an SIP into a Mutual Funds. This would ensure forced saving. To be able to better manage ur finances, take a small diary. Whenever u spend money, note down the expenses in this diary. After 3 mths evaluate how the money is spent. That would enable u to become more aware about how u spend money and suggest wat changes need to be made. If u use ur credit card, I strongly recommend that u cut it into 2 pieces and use a debit card instead.


Raju asked, Hi Sridhar, I would like to know how much I need to invest in pension plans so that I will get sufficient pension after I retire. My monthly expsenses now are at around 30K. So I need to know when I retire after 25 Years, how much i would need as pension?

Vetapalem Sridhar answers, Pension Plans offered are highly rigid in nature. And the returns too over the long run are not that great. Though it ensures discipline in investing, it would still make a lot more sense to invest in Mutual Funds thro a SIP for the next 25 yrs. U would end up with far greater wealth thro this method.


Hariharan [Images] asked, Mr. Sridhar, I am 48 years old. I seek your advice as to how much I should save and invest every month so that our current life style based on a monthly expenses of Rs 30,000 can be sustained even after my retirement 12 years down the line?

Vetapalem Sridhar answers, U would need to accumulate roughly around 1 cr to maintain ur lifestyle till ur age 85 yrs. The amount that u need to invest would depend on how much resources that u have already accumulated. If u do not have any resources till now, u would need to do a 25K pm SIP into diversified equity Mutual Funds to reach a target of 1 cr in 12 yrs time.


vintesh asked, hello sir, I am working abroad having a savings bank A/C in india how i can start investing in MF? is possible through online investing on monthly bases my currently saving is 40K/M.

Vetapalem Sridhar answers, Hi Vintesh, U can register with individual Mutual Funds to get online access. With this access and Net banking it is possible to purchase Mutual Funds online. There is a one time paper work that would need to be done.


Prasanna asked, Dear Mr.Sridhar, Which is the best: Shares/MF/FD? Age:22; Gross:10k; Savings:5k p.m.; Want financial Freedom at 30. How much should I save from the next month? Savings as far as now:12k.

Vetapalem Sridhar answers, Dear Prasanna, It is not possible to predict the best MFs in advance. U can read thro the following link (Slide Show, click NEXT to read thro) to know how to evaluate and pick Mutual Funds. http://specials.rediff.com/getahead/2007/oct/12fund1.htm. To invest in stocks directly u need to do ur homework. There is a lot of effort involved if u want to pick gud stock. To know how returns r made in stock read thro the following article. http://www.rediff.com/getahead/2007/sep/14stocks.htm


ben asked, Dear sridhar The questions are coming from the persons who are earning more than 20k etc atleast per month. Do you mean to say that the person who are not earning less than 10k (take home) can be financially independent in future?.I belong to that category and 10k per month (net). I am married and 36years old. I am a central govt employee. Can you give some suggesions for me? My retirement age is 60 Years.

Vetapalem Sridhar answers, Financial Freedom is a lot relative to the state u r in. Even if u earn less, but if ur cost of living is lower, u can achieve Financial Freedom. Similarly if u earn higher income, but the cost of lifestyle is greater than income, such a person will never achieve Financial Freedom. U still have a long working life (24 yrs). Invest any savings into diversified equity Mutual Fund with a long term (20yrs) horizon. u will definitely achieve Financial Freedom by the time u retire, if u keep ur lifestyle in check.


DXB asked, I am an NRI & wants to invest long term for 10-15 yrs. please advise which mututal funds will give a good return of 20-30%?

Vetapalem Sridhar answers, The returns expected r not realistic. u should expect around 15% annualised returns over this tenure. Pick a large cap fund (Reliance [Get Quote] Vision, Sundaram Select Focus), a Value based fund (SBI [Get Quote] Contra), a mid-large cap fund (Franklin Prima Plus) and an aggressive fund (JM Emering Leaders Fund).


vvvv asked, hi. i am married woman with 100% home ownership, no debt and sizeable savings (57 lakhs). husbands earnings takes care of all my living expenses. presently i am not working so no further income. currently, my 57 lakhs are being deployed as thus: 20 lakhs in mutual funds, 17 lakhs in FMPs and 20 lakhs in idle cash (i dont anticipate needing it either). please advise what i should do with my 57 lakhs for future requirements?

Vetapalem Sridhar answers, Based on info I feel that u should shift around 10L from cash to Equity Mutual Funds with a 5 -7 yr horzion. U have not provided details like cost of living to guide u further.


Vetapalem Sridhar says, I've run out of time. Will catch up again sometime soon...


Part I: Planning your retirement? Consider inflation

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


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