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Falling markets: 'I'm fed up of investing in SIPs'
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July 17, 2008

The Indian stock market seems to have entered a free fall and harried investors like you are wondering if they should keep on investing their money in systematic investment plans, SIPs, of mutual funds.

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Are you right in thinking this way? What should be your strategy during such difficult times when losses just keep on mounting? Should you stop investing or invest more then? If you are still keen on investing should you go for diversified equity funds, equity linked saving schemes or assumed to be safe products like fixed maturity plans?

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.

umesh asked, currenty which sector i should invest in?

Vetapalem Sridhar answers, Hi Umesh, basics of investing suggest that you should hv a core portf of diversified funds before u think of any specific sector. And even then a sector fund should be considered only in case u hv indepth understanding of the sector. By asking the Q itself it is evident that u r not an expert in any specific sector. So would suggest that pick diversified funds and invest in them with a 5-7 yrs horizon.

bala asked, What is the future for Infosys [Get Quote] stocks? Can we look at the stock turning upward once the political chaos are over? Or should I wait through US elections in November?

Vetapalem Sridhar answers, Though it is facing tough times, Infosys is amongst one of the best managed companies in India. U can expect it to deliver average returns with a long term horizon. It does qualify as a stock which can form part of a long term core portf which adds stabiltiy. In the short term, which u hv in mind, no one can say with certainty wat will happen to the stock price of Infosys�.

nadu asked, Sir,last date of return file is 31st of july 2008. if we fail to return file before 31st of july 2008 then what happern.i have tds certificate with me of approx. amount 65k. can we get this refund from income tax if we late return file i mean after 31 st of march 2009???

Vetapalem Sridhar answers, I think speaking to a Chartered Accountant would the best way for u to know. . Having said that, I want to comment that why dont u file your returns within the due date? A similar attitude in Investing would create problems for u in future.

raj kumar asked, i am holding mutual fund of icici infra 25000,reliance banking 25000, jm basic 50000 all growth should i hold or sell .

Vetapalem Sridhar answers, The first Q that u need to ask urself is what is ur objective of investing. All actions or a strategy of investing should be based on that.... If u hv invested with an objective of creating wealth in the long run, there r simple things that u hv to focus on: 1. invest regularly with DISCIPLINE, 2. Have PATIENCE and allow the magic of compounding to play its role , 3. Be FOCUSSED on investing with a long term horizon and not let emotions (due to mkt movements) affect decision making 4. Put EFFORT into learning about investing which will help u become aware about your money and wat is happening to it.

Sandeep Kumar asked, Can you suggest good FMP available in market?

Vetapalem Sridhar answers, Hi Sandeep, FMP is a Fixed Maturity Plan, offered by mutual funds and r something similar to a Fixed Deposit. As returns come under capital gains, it is more tax efficient than an FD. FMPs keep coming at regular intervals, but are open for just around a week...So to invest into one, u would need to talk to a MF Advisor or to ur banker. Also let me caution u that there is a risk in FMP which u should be aware of. The RISK is risk of default. Hence to ensure that this risk does not hit u please make sure that the FMP is investing into gud quality papers..

mmk asked, Sir, I am confused while choosing "Term Insurance". Can you please suggest the factors we should consider while choosing "Term Insurance" & also good term insurance options available in market?

Vetapalem Sridhar answers, Insurance is to cover risk (in financial terms only). Hence if a person dies and there r people dependant on him/her (in financial terms) then they will be put into financial discomfort. Hence the role of insurance should be limited to the extent of this financial discomfort. It is not an easy task to put a figure to this financial discomort. It would include all existing liabilities and future living cost of dependants (minus current assets, future earning potential of any other earning member). Hence when current assets exceeds the liabilities and future living cost of dependants then the need for insurance no longer remains. Evaluation also needs to be done whether a non working member of the family can take up work and earn if the need arises in this estimation. Hence in majority of cases Term insurance works out the cheapest soln to the above issue.During the period (generally 10-20 yrs) that the term cover is in operation the focus should be on creating a good amount of assets, thereby ensuring that the need for insurance no longer remains. SBI [Get Quote] Shield, Reliance [Get Quote] TERM plan, ICICI [Get Quote] Pru Lifeguard WROP r some gud options available....

mb asked, I invest in ELSS which includes Fidelity Tax Advantage Fund, SBI Magnum ,Birala Tax Relief 96, DSP ML, Princiapal Personal Tax Saver. Shoud i continue with these or do u think i should modify my portfolio..pls advise.

Vetapalem Sridhar answers, Why do u want to invest into so many ELSS schemes. It like u r eating a Simla Apple, a kashmiri apple, a New Zealand [Images] Apple, an American Apple. Finally it is just a Apple that u r eating. Pick just one or at max two ELSS schemes and conitnue with them in future. Once ur 1L limit is taken care of invest money into regular diversified funds. Ideally u can create a well diversified portfolio with around 4 to 6 funds. It does not make sense to increase the number of funds. A large cap, a diversified, a Mid cap and an opportunities fund would create a well diversified portfolio. One ELSS fund for the sake of investing to save on tax u/s 80C should be sufficient.

Gunjan asked, Hi, if I have 1 lacks to invest and my risk level is intermediate what will be the best investment strategy?

Vetapalem Sridhar answers, What do u mean by intermediate risk? Ur risk bearing ability is determined by the horizon of ur investment. The horizon of investment depends on when u need money back. When u need money back depends on when ur needs hit u. So first determine this. If after doing this analysis u find that the horizon is more than 5 yrs, invest the money into a diversified equity Fund. If not then at this stage a bank FD should be a better option.


Vetapalem Sridhar answers, Hi Amit DISCLAIMER: Now this is my Current View and which may change based on happenings. Based on marco economic factors and study of certain aspects about real estate, it seems that a lot of builders will face a cash crunch somewhere during the start of the next financial year. Banks may not easily lend to them as they will be considered as a high risk category. Also due to higher housing loan rates (which r expected to go up further) most people r finding EMIs too high to take loans. This is leading to a drop in demand. Again As biulders will be short of cash and interest cost will rise they will not be in a position to sit on unsold flats. So all in all this should lead to a correction in property prices. It is not possible to know how much and how long the correction will last. But it is being floated around by specialists in real estate that around a 25% correction should be expected.

rajesh asked, What would be the ideal horizon to remain invested in the market?

Vetapalem Sridhar answers, Dear Rajesh, Warren Buffet's ideal horizon to invest in a Company is FOREVER! And he is the greatest investor that we know of. The minimum horizon that u should look at is atleast 5-7 yrs...

rock asked, What will beneficial in long term? Buying a property now and pay EMIs or to invest in SIPs for next @ 20 years.

Vetapalem Sridhar answers, Definitely investing in a SIP into a diversified equity Mutual Fund should be more beneficial if compared to buying a property and holding it for 20 yrs.

Kumar asked, I want to start an investment for my son's education. What is the best plan in the market? My son is just 3 months old.

Vetapalem Sridhar answers, Hi, I think that for ur son's higher education we can safely say that there r still around 17 yrs. So this tells us that ur horizon of investing is around 15 yrs atleast...So for this horizon the best return potential is going to be offered by equities. To invest in equities the best method is to invest thro diversified funds. Remain invested into equities for 15 yrs and u would hv created enough funds for ur child's education needs... I hv written a comprehensive article on this topic. U may want to read thro it...Investing for children A Slide Show, click NEXT to read thro.

rocky asked, Is this the best time to invest in share market or i should wait for some more time till the market falls further.

Vetapalem Sridhar answers, Dear Rocky, if u know EXCATLY how much more the mkt is going to fall then OBVIOUSLY it makes sense to invest at lowest level of the mkt. But as u urself would know that u do not know the answer. So stop worrying about timing the mkt and start investing regularly with discipline. And remain invested with a long term horizon.

manoharan asked, Mr.Sridhar, 6 months back all analysist said market won't correct more than 500-1000 points at the peak of 21000, but now the same analysist says market is heading to 10000. How we failed to anticiapte this big fall?

Vetapalem Sridhar answers, Dear Manoharan, wat a beautiful observation! If we just analyse it further, it tell us that even the so called experts do not know how the mkts will behave. So stop listening to people who r in the business of predicting where the mkts will go and try to learn the fundamentals of investing. Some of them r invest regularly, maintain a suitable asset allocation, remain invested with a long term horizon. Remember tht mkts hv a mind of their own, and time and again it keeps proving u wrong.

rahul asked, Hi How do you look at investing in SIP's and other equity based products at this stage?

Vetapalem Sridhar answers, Hi Rahul, is the stage referring to the fall in the mkts? Let me ask u a simple Q, do u go and buy all ur groceries when prices are down and not buy at all when prices rise? NO. Maybe U buy less but u dont stop buying when prices rise. Similarly should be the case with investing in equities. When they fall u should be investing and similarly when they rise u should be investing. And SIP is a very simple method to invest regularly with discipline.

Aditya asked, Sir My Portfolio is as under Sip 1000 each for 3 years (started in May08) in BSL Frontline Equity & HDFC [Get Quote] Top200, 30000 in Principal personal Tax saver, 10000 in JM Tax Gain, apart from that I want to invest more 5000 Rs. per month in Mutual Fund kindly suggest me some good funds which will balance my portfolio in this Market condition i m looking for 8-10 yrs period. should i go for Shares also?

Vetapalem Sridhar answers, Hi Aditya, Split the 5k into 2 SIPs. U can look at one large cap fund like Relaince Vision, franklin bluechip, etc and one mid/small cap like Sundaram SMILE, JM Emerging Leaders etc... I think sticking to MFs should be a better idea... The horizon is gud...

Kumaran asked, Hi, Is it right time to invest in FD, now? Or should i wait expecting an increase in the deposit rate? If so, probably how long?

Vetapalem Sridhar answers, There r indications that inflation is expected to rise further to around 15%. Though it cannot be said so with cerainty. But as RBI is expected to raise rates soon, I think there is a strong possibility that deposit rate will go up in a months time. So it wont harm too much to wait for a short period before deciding on it.

Deepak asked, Hi, its common now to hear from you people that keep on investing keep on investing....... so how long ? Market is completely out of track & may take 2-3 yrs to make up even no one can predict. Can you ? NO, then on what basis you are suggesting we people to remain & investing ? You all must be geting your funds in pockets from these companies otherwise no one is suggesting to do so. I am fadeup of doing SIPs. Please dont mind.

Vetapalem Sridhar answers, Hi Deepak, why do people not complain when mkts go up continuously at a rapid pace without falling? and why do they complain when mkts fall. When in the past equities have given 100% return in short spans did u not enjoy it? This apart, Mkt consists of 2 parties - Stronger Hand and Weaker Hand. Both own equities. The Stronger hand will hv strategies to make weaker hand sell stocks when they are low and buy them. A simple strategy is to take mkts to very low levels and keep it there, which frustrates the Weaker Hand (THE SIGNS R EVIDENT IN UR Q) so that eventually he sells her/his equity. The day most of the Weaker Hands start to sell u will see that mkts resume their new upward journey. The only way u can avoid being the weaker hand is to hold onto ur investments by having a Long Term horizon and infact investing consistently at lower levels of the mkt.

Dinxie asked, Hi Sridhar, How good are the Money Back policies from the financial planning point of View? Is there any policy which handles the inflation also? I am thinking of opting LIC [Get Quote] Jeevan Tarang, How good is this?

Vetapalem Sridhar answers, Dear Dinxie, from a view of a investor Money back policies hv become irrelevant today. However commission structures in such policies r high and hence they r still sold. I dont think that in the long run tradition money back policies would be able to beat inflation. I would suggest that u take up a TERM Insurance for the cover and invest into a diversified Mutual fund just as u would invest in the policy...

Jyotis asked, How to make 1 crore in 20 years, How much amount should someone invest on monthly basis to achive this target.

Vetapalem Sridhar answers, Say by invest around 7.5K p.m. for the next 20yrs into a diversified equity MF u can accumulate around 1 Crore. But in purchasing power terms its value should be roughly worth around 32L in current terms...assuming an inflation of 6% p.a.

Vetapalem Sridhar says, Patience is the key to making money in equities....I hv run out of time friends...will catch up soon...

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

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