Best SIPs for saving tax

Which are the best systematic investment plans for saving tax? Which are the best mutual funds to buy now?

How should you plan your taxes and dervive optimum returns from them? Should you buy a house, go for a loan in the current economic situation?

To answer these and various other money and invetsment related queries, financial planning expert Vetapalem Sridhar, hosted a chat with GA readers on February 12.

For those of you who missed the chat, here's the unedited transcript:

Amit_27 asked, I have BajajAllianz Gold unit policy for which I paid first premium of 12000/- Rs. which is showing current cost is 5000/- .Can I go for next two years premium to paid or not. I have to pay for 3 yrs.

Vetapalem Sridhar answers,  at 2009-02-11 13:58:34Hi Amit, it is imp to understand the working of the product before u sign on the dotted line. The premium allocation charge in the first year is steep, hence the low value. I would suggest that u invest for the full tenure of the product and not just for 3 yrs.

Prs asked, Is SIP is a better optiopn than MF ? which SIPs are best.

Vetapalem Sridhar answers, U need to spend time to understand the basics of investing. SIP is a method by which u can invest into MFs. SIP is suitable for those investors who can save some amt monthly or for those who want to invest regularly over a period of time. This ensure that ur investment happens over a period thereby purchasing units at different levels (averaging out ur purchase price). U can look at funds like HDFC Growth, Reliance Vision, Sudnaram Select Focus, DSPBR Top 100 etc as options.

Rajiv asked, Hi Sridhar, I wanted to ask you if it makes more sense taking a loan at 18% and investing in Tax saving instruments or just pay your TAX ? I fall under 4-5 lakh bracket.Thanks

Vetapalem Sridhar answers, Dear Rajiv, it is definitely not advisable. It would be better to pay tax and for the next yr plan ahead and set aside money in advance.

Dev asked, Hi Sridhar, Wanted to ask you whether its a good time to invest in real estate in the NCR region in the next 3-6 months, or should one wait even beyond that? By about what time is the real estate market expected to take the upswing again?

Vetapalem Sridhar answers, Hi Dev, it is difficult to time the bottom. But somewhere in the next 3-6 mths seems like an idea time to get into real estate - as prices hv fallen and interest rates too r coming down. Start looking for deals from now itself. Real Estate prices may not rise very soon. U should have a 4-5 yrs horizon if u r looking at it as an investment.

smO asked, Hi, I have the following investments in MF SIP. in the current scenario should I continue or reduce. Is my portfolio a good mix./(1)DSP BlackRock India TIGER Fund Regular Plan - Dividend (Rs.10000) /(2)Sundaram BNP Paribas Select Midcap - dividend (Rs.400) /(3)HDFC Equity Fund - Dividend(Rs 4000) /(4)Birla Sun Life Frontline Equity Fund -Dividend (Rs.4000)/(5)RELIANCE GROWTH FUND-RETAIL- DIVIDEND (Rs 4000). If I have add a large cap fund, what would be your suggetion. Thanks

Vetapalem Sridhar answers, Hi, ur portf is having a higher exposure of Midcaps (which have fallen substantially). U do not hv a core portf consisting of large caps in place. I would suggest that u should add 1-2 funds like Reliance Vision, HDFC Growth, DSPBR Top 100, etc and Stop SIPs in 1-2 midcap funds.

gupta asked, Sir, IS SIP in HDFC Prudence Growth a good investment or not??

Vetapalem Sridhar answers, HDFC Prudence is a very well managed balanced fund. It have an enviable track record over the last many years.

murali asked, Dear Sridhar, I am a retired person and my MIS account for 6 L is maturing in May. Could you suggest where I can invest for good monthly returns pl?

Vetapalem Sridhar answers, Dear Murali, interest rates in most fixed income places is expect to go down. If u r happy with the return from the MIS u may look at renewing it. U should evaluate options again in May once the money is maturing.

Karthik asked, Is PPF a good investment option for variable investments each year?

Vetapalem Sridhar answers, Dear Karthik, u can invest different amts each year into ur PPF a/c. No problem in that, but returns r fixed as specific by the govt.

sudheer asked, I am working with satyam, with huge homeand personal loan of arounf 50 lakh. What would you suggest to someone like me who doesn;t know what is going to happen to me and my family?

Vetapalem Sridhar answers, Dear Sudheer, it is extremely imp for u to build a sizable contingency fund. It should be able to pay all EMIs and help u sustain ur life for a period of around 6 mths. If u do not already hv the contingency fund, then over time u should allocate from ur saving to build it. U can talk to ur banker in case of any problems from ur employers end, as they would be accomodative.

jrkbobby786 asked, Sir, What is the main cause for Recession accross the world?

Vetapalem Sridhar answers, To name a few, Human greed, Going beyond ur means financially (excessive leverage), imprudent decision making. The excesses built into economy collapse when they are no longer sustainable, and we have to face the consequences in the form a bad economy or wat the world is seeing.

hjhgjhgj asked, Hello, I want to start a business by 2015 and i need 50 Lakh.How much should i save every month to make that amount and where should i invest this amount to get good return?

Vetapalem Sridhar answers, Hi, if u invest the money into diverisified MFs, then around 30K p.m. till the end of 2015 should enable u to accumulate around 50L. The return assumed is around 17% annualised over this tenure.

GMT asked, hi sridhar, my investment is in lic market plus & money plus since last 2 years, it is near about 40,000. rightnow the NAV of both the unit link plans are low. i want to invest other 20000 rupees. so what i have to do. which is the best ULIP plan in this market condition.

Vetapalem Sridhar answers, Hi, it may make more sense for u to take up a TERM Insurance cover or ur life cover needs and invest the rest of the money into Mutual Funds with a long term horizon. U already hv ULIPs among ur investments.

shridhar asked, i have invested in m f when sensex was 21000 shai i hold it or withdrawn

Vetapalem Sridhar answers, Hi, u should remain invested for the long term and infact continue to invest during the down phase in the mkts. This will ensure that u will make reasonable returns over the long run.

APRAO asked, Hi how should i plan and save money for future. My salary is 30k/m. How much i can save per month apart form my petrolexpenses. please help me in planning

Vetapalem Sridhar answers, Hi, u should keep a written record of ur expenses for a 5-6 mths period. Post this u can review ur expenses and identify unnecessary expenses which can be eliminated in future. U will get an idea of wat would be u avg mthly expenses. Rest of the money is ur savings. This should be invested wisely to ensure a better future.

pnath asked, Dear Mr Sridhar,can you suggest some good Monthly income plan,I want to invest around rs 6 lakhs

Vetapalem Sridhar answers, Hi, r u looking at a monthly income for ur regular needs? In such a case do not be misled by the name Monthly Income Plan (MIP) from the mutual fund side. A monthly income is not gauranteed. U may want to look up safer options like Postal schemes or bank FDs. U may also evaluate the TATA Capital Gain Bonds with gud returns, which r available currently for part of the money.

Ashish asked, Hi Sridhar, I have invested in the Birla Sunlife ULIP Flexi Cash Flow with a 80% asset allocation exposure to Equities. The yearly premium is 1 lakh. I have already invested around 2.5L as of now with another 2.5L mandatory premiums to be paid over the next 2.5 years. The current value of the fund is approx 1.9L. What should be the strategy moving ahead. - To stay invested or to withdraw keepin in mind the current scenario. I have already gone ahead and changed the allocation exposure to Equities from 80% to 40%.. Please Advise

Vetapalem Sridhar answers, Dear Ashish, ULIPs r a very long term investment option and not just for a 3 yrs period. It may make sense for u to pay all premiums and remain invested with a long term horizon. As mkts r lower investing fresh money into higher equity exposure option would be wiser in the long run. Mkts may see lower levels in the short term.

PremBaranwal asked, Hi, I want to invest around 100000 for short term (~6-8 month) gain. Is debt fund best option? Which debt fund do you suggest? Thanks.

Vetapalem Sridhar answers, It maybe better option to go for a Bank FD. In case u want to look at a debt fund, only look at Short Term Debt funds.

keshrahul asked, Hi Sridhar, Which option is better while taking a ELSS- dividend or growth, considering the fact that ELSS has a locking period of 3 years

Vetapalem Sridhar answers, Hi Rahul, u should opt for a growth option in equity MFs. Incase u wish to opt the dividend option always select DIVIDEND PAYOUT option for ELSS funds, as otherwise u can get locked in the fund, as whenever a dividend is declared an new units r issued in a Dividend reinvestment option, the new units r locked in for a further 3 yrs period.

chetan asked, if i have to invest for my Tax planning an amount of say 50,000 which option should i go for?btw i have 25,000 insurance policy already

Vetapalem Sridhar answers, Dear Chetan, u should consider an ELSS Mutual Fund if u r will to take higher risk thereby the potential for higher return in the long run. U can look at options like HDFC Taxsaver, Sundaram Tax saver or Franklin India Index Tax Fund. In case u want a safer option with a cap on returns, u can look at PPF or the 5 yrs Bank FD.

parry asked, I earn 40k a month after tax cuts. I spend 25k after all monthly home/personal expenses. How can i effectively use remaining 15k effectively as good investments?

Vetapalem Sridhar answers, Hi Parry, u seeming to be saving well. It is important that u evaluate and identify ur short term and long term needs. For short term needs u should invest the money into safer avenues whereas for ur long term objectives u should invest the money into equities investments. Split the 15K based on the above. For equity MFs u can look at HDFC growth, Reliance Vision, DSPBR Top 100, Sundaram Select focus, etc...

Ravi asked, Hi, I am planning to put money in ELSS MF schecme which will give tax exception too. is it the right choice or Fixed deposit? Please suggest me. If it is good please suggest which are doing good. Thanks

Vetapalem Sridhar answers, Dear Ravi, if u can invest this money with a 5-7 yrs horizon, the an ELSS fund would be an ideal choice.

sfg asked, Tell about TATA Capitol NCD ???? should one apply ???/

Vetapalem Sridhar answers, TATA Capital Gain Bonds (NCDs) r a gud option which r offering a higher pretax return 11-12% depending on option selected. It is going to be listed on NSE. For those who will hold it for more than 1 yrs, the gains will be considered as Long Term Capital Gains which r taxed at lower rates. Plz read thro the prospectus for detailed info which is available on the link below http://www.tatacapital.com/pdf/NCDPublicIssue_January012009.pdf

jayakumar asked, gd day sir. in the company i work they have reduced salary by 20%. i had just prepared to go for a second house in trichy/hosur for which planning to take a loan of rs.10 lakhs. is it okay to proceed. my take home pay pm after reduction is rs.50k. await ur advise

Vetapalem Sridhar answers, Dear Jayakumar, it is never a gud idea to be over leveraged in a single asset class (real estate in ur case), especially in difficult economic times. A lot of people may may face salary reductions, but some may also face job loss. U should be prepared for all types of situations. U can look at a second property when u r on a more stable footing.

Jagadish asked, Hi, I am getting 60k per month salary and i have 2 dependents. I have one life insurance policy and paying 24k per anum. I am not saving any money. All I am spending. Could you please suggest me. What all the good sources for investment

Vetapalem Sridhar answers, Dear Jagadish, SIP is an idea option for people like u. Every mth at a specific date a predecided amt is deducted from ur bank and invested into a Mutual Fund. To ensure regular disciplined saving, u can do this SIP into a Liquid Fund of a Mutual Fund. From this liquid fund u can channel this money towards more long term investment options.

Srini asked, Hello Sir, Can u name 2 good midcap/small cap mutual funds, which can give good profits over long period.

Vetapalem Sridhar answers, Hi Srini, this may not be the best time to invest into Mid-Small caps. Some of the small-mid cap funds that u can evaluate are Sundaram SMILE, SBI Midcap, JM Emerging Leaders Fund, etc.

Fin asked, I'm novice stock market investor. I've already invested in a real estate. I have an excess of 3 lakhs with me. Should I pay this towards my housing loan (total 25lakhs) or should I invest in shares? Which one should I invest? I have long term investment plans.

Vetapalem Sridhar answers, In such an environment it does not make sense to pre-pay ur housing loans. First priority is to ensure that u have adequate money (4-6 mths worth or expenses and EMIs) set aside into a Contingency Fund, in case there is a salary cut or loss of job. If this is in place then the rest of the money should be invested into equities with a 5-7 yrs horizon. In the short run hosuing interest rates r expected to fall further and potential for returns from equities over the long run is very gud.

Fin asked, I'm novice stock market investor. I've already invested in a real estate. I have an excess of 3 lakhs with me. Should I pay this towards my housing loan (total 25lakhs) or should I invest in shares? Which one should I invest? I have long term investment plans.

Vetapalem Sridhar answers, Hi, in such an environment it does not make sense to pre-pay ur hosuing loan. U should set aside adequate funds (4-6 mths worth of expenses and EMIs) into a Contingency Fund. Once this is in place then u should invest the money into equities with a 5-7 yrs horizon. In the short run housing interest rates r expected to come down further and over the long runs equities have potential to deliver higher returns.

ks asked, Hi sridhar , I have been investing 50,000 - 60,000 from last 4 years in tax saving mutual funds. But my investment of 2 lakhs(50k each year) is now just worth 1.5 lakh. This year also I am planning to do 60K for tax saving. Out of that I have invested 15K in life insurance and 20K in ULIP. I have to invest another 25K. Is investing in mutual fund offer good returns after 3 years?

Vetapalem Sridhar answers, Continue ur ELSS investing and over time as mkts recover, u would have made resonable returns over ur investments. Be ready to wait for a further 3-5 yrs for this.

SUBIR asked, I have invested Rs 10 Lacs in JM BASICS in Jan 2008.The market value has come down less than Rs 2 Lacs at the moment.Considering the performance of the fund in 2007, I took the chance .I never expected that the global economy will melt down so fast.Please advice what should I do with this fund? Should I continue or quit? Subir

Vetapalem Sridhar answers, Dear Subir, u should continue to remain invested in the fund with a 5-7 yrs horizon. It is never a gud idea to put all ur money into a single fund.

raghavendra asked, how do i calculate HUMAN LIFE VALUE AND HOW WILL I DO ASSETS LIABILITY MISMATCH TO TELL CUSTOMERS HOW MUCH INSURANCE COVER HE NEEDS? I AM A BANKER

Vetapalem Sridhar answers, Dear Raghavendra, 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. In majority of cases Term Insurance works out the cheapest soln to the above issue.

shan1 asked, Hi Sridhar, how much liquid cash one should keep to tide over the financial crisis?

Vetapalem Sridhar answers, This is depending on individual circumstances. Ideally for those who r in stable jobs a contingency fund should have around 3-5 mths worth of basic expenses and EMI payments. In case ur jobs r not very stable the period should be higher. For self employed professionals this amt may be higher or lower depending on the stability of cash inflows.

divi asked, Hi Sir, I am investing in three sips tax saver plan of HDFC groth, reliance and one more HDFC growth per 3000/- in each, but due to this recession m really worried. should I take out this amount and save in to PPF or some NSC.Earlier my plan was for SIP was for 5 year continue. pls. advise

Vetapalem Sridhar answers, Hi Divi, in bad economic times the prices of equities go down. So they are available at comparatively Lower prices. It is simple common sense that we should BUY LOW and SELL HIGH. Most people find it extremely difficult to follow this principle. For example in ur case u r thinking selling ur equities (when they r LOW) which u hv bought when they were HIGH. It is simple if u wish to make decent returns in the long run. Continue to invest with discipline during these lower times in the equity mkts and hold on to ur investments with a 5-7 yrs horizon.

PH asked, Sir, i have talked to many market analysts and they say that Mutual Fund always give a good return over a period of 3-5 years. One may keep investing or keep the holding after initial investment. I have taken Kotak 30 that focuses on 30 large caps. Is it the good alternative to investing directly. I intend to invest 3lacs thru Kotak 30 overa period of 5 years. Please let me know.

Vetapalem Sridhar answers, It is a gud idea, by all means go ahead.

Bozo asked, 'Tis said that during recessions cash is king. I seem to be a king, but without an inkling of what I should do with my kingship. I have 50 lakhs in cash (FDs) apart from a couple of sites (vot 30+ lakhs). What do ou think I should do with the extra cash?

Vetapalem Sridhar answers, Hi Bozo, holding so much cash is definitely a gud thing for u. However how u make use of this money will determine how gud a investor u r. U should deploy a part of the 50L into equities over the next yr or so. This will ensure that u buy equities at relatively lower levels and r able to make substantial returns when mkts recover over the coming yrs.

Vetapalem Sridhar says, Thats all for now friends! Will catch up soon to answer ur queries...

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