Want to achieve financial security? Here's how

Do you know how much amount from your salary you must save every month to achieve financial freedom?

Is it good to time the stock markets? Is it possible, in the first place, to time it?

If you are young and raising a family then how should you go about planning financial freedom?

In a chat with Get Ahead readers on October 26, financial planning expert Vetapalem Sridhar answered these and several other queries related to financial planning for you and your family.

ravi asked, where should I invest at this point of time as the market is really high?

Vetapalem Sridhar answers, Dear Ravi, it is not possible to time the markets. A sure shot way to make money is to pick good (equity oriented diversified) mutual funds and remain invested for the long term (say 5 yrs or more). Investing should be based on the objectives that u may have in life. The selection of investment option should depend on the horizon of investment, returns that u need to make from the investment, liquidity and safety keeping in mind the objective that the money is going to eventually meet.

JIGS asked, HOW TO START INVESTING AT THIS TIME WHILE MARKET IS ON NEW HIGHS?

Vetapalem Sridhar answers, Dear Jigs, Let us go back a little in time. In 2000 the mkts had reached approx 6000, an all time peak. Even if a person would have invested at that peak, and remained invested till date his money would have grown at more than 15% annualised return over the last 7 yrs. But for the initial 4 yrs i.e. till 2003 end the person would have been sitting on a loss.

So investing in equity is less about timing and more about the amount of time that u remain invested. Also u may learn a little more about how such returns r generated over the long run if u read thro the following link http://www.rediff.com/getahead/2007/sep/14stocks.htm.

rahul asked, Hi, i invest in SIP's in DSPML, JM Contra.. HDFC top 200, HDFC equity, RElaince growth nd reliance equity. the total monthly outflow is around Rs 20000. is the spread good enough?

Vetapalem Sridhar answers, The mix of funds seem OK. U have not given the name of DSPML fund. Do not go for NFOs. I would advise u to switch out from Reliance Equity into HDFC Equity.

hemant asked, i earn less than Rs 10,000 how should i invest to earn a good living?

Vetapalem Sridhar answers, Dear Hemant, the amount of money u save is more important than the amount of money u earn. So focus on saving atleast 10% of ur salary initially. Increase the ratio of savings as ur salary rises in future. If u can invest this saving for a period of atleast 5 yrs, do an SIP into a diversified MF like HDFC Growth Fund..

simi asked, Hi i am 27 years old earning around Rs 10,000 per month i have one daughter of 2 years old. i want a financial security for me and my daughter. Pls Help.

Vetapalem Sridhar answers, Dear Simi, The first step is to take care of the risk element. So both u and ur husband should get an adequate TERM Insurance Cover. Plz do not take up a ULIP. Once this is done u can start a SIP into a diversified Mutual Fund with a 10-15 yrs horizon (to create a suitable fund for ur child). To know more about investing for Child, u can read thro the Slide Show in the following link http://specials.rediff.com/getahead/2007/aug/07sli1.htm.

sajith_n asked, what's the best shares and MFs to invest now?

Vetapalem Sridhar answers, Dear Sajith, best is a relative term. If it were known before hand which stock or MF was the best, then all people would only invest in this particular best stock or MF. All other stocks would stop trading and other MFs would be out of biz. Having said this, it may be wiser for u to invest into equities thro Mutual Funds. I have written a comprehensive write up on Mutual Fund selection. U can read thro the following Silde Show for the same http://specials.rediff.com/getahead/2007/oct/12fund1.htm.

William asked, i am earning less than Rs 12,500 pm. Plz tell me how should i save money and where to invest the money? where should I invest at this point of time as the marketis really high?... iam now @ 23

Vetapalem Sridhar answers, Hi William, being young u can really benefit from the magic called – COMPOUNDING. Do not worry about mkt levels. Estimate wat part of ur savings u will not require for the next 15- 20 yrs. Start a SIP of this amount and ensure that u remain invested for this period. U will achieve financial freedom quite early in life.

prabhakar72 asked, Can u please tell me how to become rich if not atleast Crorepathi?

Vetapalem Sridhar answers, Wat I have observed is that more money does not really make a person rich. Suppose u have Rs 1 Cr and ur wants are of Rs 10 Cr, u would still be poor. But if u have Rs 10L and ur wants Rs 5L, it would make u rich. So always have realistic expectations in life and build a life in the resources that u would be able to accumulate in life. This does not mean that u should stop putting efforts to invest wisely and create wealth for urself.

riya asked, hi i m earning Rs 15,000 pm but unable to save anything. my query is how much shuld i save to own a good brand new car?

Vetapalem Sridhar answers, Dear Riya, that would depend on the car that u want to purchase. But first ask urself a Q, do u really need the car or can u afford to have one?

The first issue that u need to tackle is that of savings. Plz read thro the following points and start implementing them in ur life.

Tips for saving money:

~ Understand ur income and expenses. keep a written record of ur expenses. review it at the end of each month. look at expenses that u could have avoided. In future avoid such expenses.

~ Look at ur lifestyle habits. if u go to a multipex every week and spend money, cut down on number of visits and try to find activities that cost lesser money and which r more adventurous. 

~ keep a tab on ur mobile bill. select a plan that works out cheapest for ur profile of usage.

~ Get into a SIP of a mutual fund which ensures discipline as far as saving is concerned.

~ If u have a credit card then cut it into 2 pieces as u should not fall into the habit of using it. Keep a debit card handy.

jk asked, is commercial real estate a good investment option in mumbai?

Vetapalem Sridhar answers, It would depend on the area that this real estate is located in. Even though the prices r high now, in the long run u can expect reasonable returns thro real estate. If u include rental income and capital appreciation a return of around 10-13% would be a realistic expectation with a 10 yr horizon.

sumit asked, Hi...i m 26 working as a soft engg...earning Rs 40k a month ..can you suggest what would be the best plans to save which can give me good returns and ensure that i m having good assests at the age of 30?

Vetapalem Sridhar answers, Dear Sumit, 4 yrs is a rather short period to be able to create wealth thro investing. But if u can save some money in this time and with the help of a loan, invest it into a property, it would be one of the best assets for ur life.

Padma asked, Good day to you. I have invested in SBI Magnum Taxgain-15k,HDFC Taxsaver-5k,Principal Personal Tax Savings-5k,Birla Sunlife-5k,ICICI Pru Taxplan-5k,Sundaram Midcap-5k,Fidelity -5k.I am about to invest 25k more in MF.

Should I invest in some of the same above mentioned funds? Is this diversification fine or should I trim down my portfolio? When shall I invest-right now at the peak or after November(or when the market may slightly fall)?

Vetapalem Sridhar answers, Dear Padma, U seem to be really working very hard to complicate ur own life. The max number of funds in ur portfolio should not exceed 5-6. Of these u should have only 1 ELSS scheme (u have 4). Pick one ELSS and continue all further tax saving into this scheme.

Add HDFC Growth Fund and Reliance Vision to ur portfolio to bring stability to it. Timing the mkt is not a gud idea. Start SIPs into the funds u already own. Have a 5-7 yr horizon of investing.

subramanya1 asked, hi i am earning Rs 27k per month i would like to be a crorepati at least in 15 years kindly tell me how?

Vetapalem Sridhar answers, Hi, Say if u invest Rs 15K pm for the next 15 yrs, and this money continues to grow at 15% p.a. over this tenure u should end up with approx 1 Crore. Over the last 27 yrs the Sensex has grown at an annualised rate of more than 18-19%. So equities have the potential to deliver superior returns over longer horizons.

gandhivikas asked, I am 32 years and want to have a solid finance at 35. I currently save Rs 35K every month in a bank. How should I invest?

Vetapalem Sridhar answers, Dear Vikas, Saving and keeping the money in a bank will not help u create wealth. U need to invest it either in real estate or equities to create wealth. But 3 yrs is not a very short term. Invest with a 5-7 yr horizon.

cgasaha asked, pl give idea for safe investments. at the same time liquidity is also maintained to meet the emergency need.
Vetapalem Sridhar answers, With the combination of safety and liquidity the returns would not be gr8. The best place is to keep money would be the bank.

sharash asked, Hi...I'm Sharash..i earn Rs 27K per month...i'm 28..wat shud i go 4 my nxt investment (getting a car or foreclosing my loans by increasing the emi)..i'm paying Rs 8K towards loan and besides that i'm contributing Rs 4K towards MF...my saving per month shall be approx Rs 10K under normal circumstances...expecting ur answer....sharash.

Vetapalem Sridhar answers, Hi Sharash, U have not given complete details of the outstanding loans, so cannot comment there. Prepaying loan may be a gud idea, as it would help u increase ur saving potential. A car would be a comsumption item in ur case (if u r not using it for business purpose) and hence cannot be looked as an investment.

Part II: 'Investing Rs 70K per annum can make you a crorepati'

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