Is there a way in which you can make your savings, investments, earnings grow to Rs one crore or more in your lifetime?
If yes, then ho much do you need to save and invest every month to touch the magical figure? Should you invest in a mix of real estate, mutual funds or stock markets to achieve this figure?
In a chat with Get Ahead readers on August 31, financial planning expert Vetapalem Sridhar answered these and several other queries related to financial planning for you and your family.
For those of you who missed the chat, here is the transcript.
Part I: Financial planning for the young
latha asked, Hello sir, My package is Rs 6 lakh, other than 80 C deduction, what investment should i do for future? is it on mutual fund, equity shares? what can be the propotion of divided the asset for long run?
Sridhar answers, Dear Latha, To create long term wealth, equity and real estate r the best alternatives. But for real estate u need a gud amount of upfront capital. So it makes more sense to invest into equity oriented MFs. U can consider investing into direct Stocks if u hav the requisite skills in investing and understand the stock mkts well. There is no ideal mix to divide Assets. It depends on individual circumstances. All money that u do not need for the long term (5 yrs or more) should definitely go into equities. http://www.rediff.com/getahead/2007/jul/03fin.htm.
This is an article which I had written on Asset Allocation. Plz read thro it for further clartiy.
KVS asked, I am 33 yrs old and married ; and into my first year of my job. How do i go about financial planning? Right now I am planning to avail benefits under section 80C by investing in PF, LIC, Mutual funds.
Sridhar answers, Dear KVS, The process (in brief) is as follows:
1. Understand ur own situation in detail. Put all things down on paper - Ur financial position, cash flow status, and then list down ur future needs/objectives in life.
2. Then covert needs into financial goals. And put the financial goals against a timeline (i.e. when u will be needing to make withdrawals from ur investments).
3. Once this is done, look at ur current financial structure and cash flow situation. This will give u an idea of surplus regular investible amount.
4. Run a simulation to find out that by investing the surplus money would u be able to meet ur objectives. If not then u need to fine tune present lifestyle to increase savings to meet those objectives.
vero asked, I am 42 yrs old and I want to invest in mutual funds through SIPs. My investment term is 20 yrs. Please advice the funds and the qty to hold in the portfolio for this period. Many thanks.
Sridhar answers, Dear Vero, to create a well diversified and a reasonably gud portfolio u would need around 4-6 different mutual funds. U need not hold more funds than this. Pick a Large Cap, a diversified, a mid cap and one Opportunities Fund. U can do an SIP into these funds (I hope that u will continue to invest for the 20 yrs u have mentioned). U can visit http://money.rediff.com/money/jsp/mfsearch.jsp for more information on mutual funds. With 20 yrs a return of around 12-14% annualised is a realistic expectation over this tenure.
satya asked, We are blessed with baby girl and i want to save for her from this month onwards. I started an SIP of Rs 1500 each in Birlasunlife Equity, Kotak-30, Reliance Growth, Sundaram selectMidcap. Is this fine?
Sridhar answers, Dear Satya, If u r investing only for ur child there is no need to invest in so many funds. One or at max two funds would suffice. Of the funds u hav selected pick one among Kotak and Birla, and the other among Reliance and Sundaram. I have already answered one question on child investing earlier. Plz go thro it.
syamal asked, my current ctc is Rs 5 lakhs per annum. take home is Rs 30,000 per month. how much shall i invest for a secured future? I have an LIC policy of Rs 6000 per annum and Rs 10000 per annum ICICI pru life insurance policy. Please advise how to invest and where?
Sridhar answers, Dear Syamal, U hav invested only in Insurance. Primarily, other than equity ULIPs, insurance as an investment option is merely a savings tool. The long term returns would just about equal the rate of inflation. To create long term wealth u need to invest money into equities. The best way is to do a SIP into 2-3 different diversified equity oriented MFs.
vivek asked, Hi, sridhar I am holding following mutual funds (SIP). HDFC PRUDENCE G : Rs. 1000/p.m. ,Reliance equity opp: Rs. 1000/p.m. ,SBI Magnum Contra(G): Rs. 1000/p.m. ,SBI MAGNUM MULTIPLIER PLUS (D) : Rs. 500/p.m.,Fidelity Equity (G) : Rs. 1000/p.m.,Fidelity International (G) : Rs. 1000/p.m.,ICICI Prudential Service Industries : Rs. 1000/p.m. how better I can organise my portfolio?
Sridhar answers, Reduce the number of funds to 4-5. With 7 SIPs it would become difficult to manage and track ur investments. Pick one large cap, one value fund (u already have SBI Contra), One Mid Cap and an opportunity fund. U can find more info on Fund types at http://money.rediff.com/money/jsp/mfsearch.jsp.
Sidd asked, Hi Sridhar, I am investing around Rs 7k in Post office RD. I almost paid the amount for 2 years now. Is it a good idea to continue with the investment (as the returns % is very low)?
Sridhar answers, Dear Sidd, if u have a long term horizon (5 yrs+), stop the RD and invest into equity oriented MFs thro SIP to create wealth.
nandan asked, If I invest Rs 20000 per month in some of the best mutual funds (Five star funds rated by Valueresearchonline). Will I be able to make Rs 1 crore in approximately 6 years?
Sridhar answers, If u r looking at past performance and projecting the returns, u maybe able to achieve ur target. But at a more realistic return of say 20% annualised over the next 11 yrs u can end up with Rs 1 Cr.
RahulK asked, Hi Sridhar. I am 28 single earning Rs 10 lacs pa. I manage to save around Rs 45,000 per month. I want to invest for my retirement at age 50 for which I have calculated I would need Rs 2.5 crore considering inflation of 6.5% pre & post retirement.
How much should I invest in MF's monthly to make Rs 2.5 crores in another 22 years? Also have I assumed a good inflation rate? I am currently investing around Rs 11000-12000 per month in funds like HDFC Equity, HDFC Prudence, Sundaram Select Midcap, Reliance Growth, Magnum Global, Reliance Vision. I have invested in a property which has grown 2.5 times in value to around Rs 45 lacs.
I have a loan outstanding for this of Rs 8 lacs. My EMI & rent received from property are nearly equal. I have a ULIP & other current investments value around Rs 2.5 lacs.
Sridhar answers, Dear Rahul, It was a gud Q, with comprehensive details. So I will give u a more focussed answer. There r a number of assumptions that I have made for ur case.
1. The investments r made in equity. For the first 10 yrs it grows at 16% annualised. After 10 yrs the annualsied return drops by 1%. So after 10 yrs the returns become 15%.
2. U start investing Rs 30K per month and increase this amt by 10% each yr.
3. Inflation i.e. cost of living is rising by 6.5% as mentioned by u. Assuming ur cost of living is Rs 35K (based on figures given by u) If the above is true then if u continue investing for a period of 10 yrs, u can achieve financial freedom. ie u no longer need to work for money. U would end up with something like Rs 1.26 Cr at the end of 10 yrs. This much money would be able to sustain u till yr age 90 yrs. FYI, to reach Rs 2.25 crs based on above assumptions, u will need around 14 yrs.
Sridhar says, Dear Friends, It looks like we have run out of time. But it was fun talking to u all. I'm sorry that I was not able to answer all the queries. So will get back sometime soon to answer them.
Part I: Financial planning for the young
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.
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