Readers' Corner: Financial planning

I want to invest Rs 20,000 a month via systematic investment plans (SIP) for 10-15 years. I am 32. How should I allocate this amount and in how many funds?

Consider just two or three funds. Ideally you should get a large-cap fund, a mid-cap fund, and perhaps a sector fund. Readers who want to invest a larger sum may consider two funds of each kind. Having more funds does not provide additional diversification benefit. Your minimum timeframe should be 10-15 years, but I urge you to continue for as long as you can. SIP is a very good habit. With an investment of Rs 20,000 per month, you can expect to receive about Rs 5 million in 10 years and Rs 12.5 million in 15 years.

I work for a software company as a human resource manager. My gross salary is Rs 25,000 and net salary is Rs 21,000. I am 27 and plan to retire by 55. I want to travel abroad in two years and also plan to buy a car. My current expenses are around Rs 11,000. How should I invest to reach my goals?

You are embarking on a journey of financial planning, which is fantastic. When we prepare a plan, we decide on investment strategies based on the time frame available. So for your goals that will come up in two years, that is, travel and car purchase, you should invest in short-term bond funds (expect a return of 7-8 per cent). If you are willing to take just a little volatility, you may consider a monthly income plan (MIP), which could give you a return of around 9-10 per cent.

Fund houses will soon change the names of their schemes and merge similar schemes, as the regulator has directed them to do. How will this affect investors?

If you manage your investments on your own, such renaming will make it easier for you to identify funds. The name of the fund will accurately represent its investment strategy. That was the objective of this exercise. You will need to study what action your fund house is taking and accordingly realign your portfolio. If you have engaged a financial advisor, he will take appropriate action to ensure that you have adequate exposure across various investment categories.

I am 33. I have been quitting jobs every two years to pursue my interests for the next one year until my savings are exhausted. I have done it thrice. I am back into a new job. Is there any advice you can give me to ensure that my savings last longer than one year? Are there any insurance policies that I should buy?

With your kind of life strategy, you definitely need health insurance and life insurance as well, if you have dependants. For emergencies you may consider a fixed deposit. Savings last longer if you do two things: save more by spending less while you work, and invest smartly so you can earn a better return. I have a suggestion for you. Can you consider working for five years, invest smartly, create a sufficient base of capital, and then quit your job forever? Live off the returns of your investment and pursue your interests forever.

I am a new investor. My parents have always stuck to fixed deposits (FDs) and post office savings schemes. I want to know if investing in mutual funds is safe, who will take care of my investment, and whether I will have to check it at regular intervals myself?

Mutual fund are a smart and efficient vehicle for investing. Start by learning about how to invest, and about how to review and monitor your investments.  You can do yourself. Read a lot and keep yourself updated. 

Speaking of fixed deposits, do not get carried away. You might be making a common mistake of comparing apples and oranges, that is, fixed deposits and stock markets. Perhaps deposits give a lot of safety and security to your parents. Your parents can definitely consider debt mutual funds.


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