Have you started investing money in mutual funds, insurance and stock markets so that you get a decent return when you retire?

Do you think that the amount you will get then will be sufficient to take care of your financial needs? But do you know that the value of Rs 25,000 that you earn today may not remain the same when you retire due to an increase in inflation?

What should you do then? How should you plan keeping this in mind so that you can retire at 40-50 without having to boder about inflation eating into your returns?

In a chat with Get Ahead readers on November 20, 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 II: 'Financial freedom is a relative term'

gkb asked, Good Afternoon Mr. Sridhar. I never had enough resources to invest earlier. I am currently 35 and single. Is it good enough to accumalate retirement wealth (around 50 years) if I invest 70000/- annually at PPF and another 50000/- in Mutual Funds hereon? Just to keep you aware, luckily I have already 3 Life Insurance policies which I took when I was around 28-30 years.

Vetapalem Sridhar answers, Hi gkb. With the proposed investment u should roughly be able to accumulate around 50L by ur age 50 yrs. U have not mentioned details about ur insurance investments. 50L then should be able to generate around 10K worth of purchasing power in today's terms (assuming cost of living rising by 7% p.a.). This withdrawal can be continued till ur age 75 yrs taking into account the rise in cost of living. If u can live ur life in 10K today, and will keep a similar lifestyle throughout ur life, u can think of retiring by ur age 50.

john asked, Hello sridhar, Please let me know the amount required in debt instruments such as in fixed deposits and MIP funds to generate at least Rs 25,000/- monthly income.

Vetapalem Sridhar answers, Dear John, assuming that u r able to generate a post tax return of 7.5% (possible thro a combo of FMP, FDs and MIPs), u would need to have around 40L so as to generate approx 25K p.m. income. But as time goes by, the purchasing power of 25K would reduce due to effect of inflation.

Ritakriti asked, Hi I am Ritakriti, earning 18,500 per month. I have invested 1,50,000 last year in various mutual funds and NSCs, and will be investing around 70000 as a premium to those mutual funds for three years. My age is 28 years and married, have a 2 yr old daughter. I want to know how and where should i invest my money so that i can get interest monthly on that after 2 years when i stop working?

Vetapalem Sridhar answers, Dear Ritakriti, In around 2-3 yrs time by investing the money u should be able to accumulate around 3-4L. When u want to start withdrawing money, u invest this entire amt into a diversified equity oriented mutual fund and start a Systematic Withdrawal Plan of 1% of the amt per month. These withdrawals u can continue to receive for a very long time (maybe 20 to 30 yrs). But then over time the purchasing power of the amt withdrawn would reduce.

anand asked, Sir, how much to invest (%) in shares, equity related MF, debt related MF, fixed deposits, Insurance, PPF/NSC?

Vetapalem Sridhar answers, Hi Rajesh, there is no standard rule to decide on Asset Allocation. Asset Allocation should be decided on the objective of investing, risk appetite, horizon of investing and the amount of returns expected or needed to be made. I have written a comprehensive writeup on Asset Allocation. U can read more on it if u follow the link below: http://www.rediff.com/getahead/2007/jul/03fin.htm.

rajesh asked, Hi, I am 31. I am investing 5000 per month for last two years in a tax saving mutual fund. I don't have any insurance and got married last year. what more can i do or make changes in my investment as my income is 15k per month and i cannot save more than 5000 per month?

Vetapalem Sridhar answers, Dear Rajesh, at this point of time continue to invest in the ELSS Scheme. Also as u have responsibility of ur family, it is essential that u look at taking up an adequate TERM INSURANCE cover.

Kapil asked, I am 29 years old and working as Manager in IT in a KPO company. In the last 2 years I have regularly bought a few Mutual funds (HDFC [Get Quote] Equity, Reliance [Get Quote] Growth, Fidelity Equity, Magnum Global) and my porfolio value as of today is 2.5 Lacs. Now a days every month I invest 4K from SIP route. I want to achive financial freedom at the age of 45. I have a kid and planning to have one more and I also wanted to make sure that I can give them good education too (degrees from US, etc.). Please let me know if I am on the right track. Thanks in anticipation.

Vetapalem Sridhar answers, Dear Kapil, it is gud that u have a clear idea of what u want in life. Ur Objectives seem to be clear. But to actually evaluate whether u r on track, will need more info. U can meet up a genuine Financial Planner to work on a Plan that would enable u to meet ur objectives. The funds that u picked seem to be reasonably gud. Plz read thro the following slide show that would give u an understanding as to how to create resources for ur childern's future. http://specials.rediff.com/getahead/2007/aug/07sli1.htm (This is a slide show, so click on Next to read thro).

Nutan asked, Dear Sridhar, I and my spouse together earn 7.4 L p.a.I am 27yrs and my husband is 32 yrs. old. I have son who is 2.5 yrs old. I have invested about 2 L in Mutual Funds and Equities. I have taken home loan of 7 L for 10 yrs. I do not have any insurance plan though I am looking for one. My husband has insurance of 5 L. Can you please advise right investments to be done in insurance, debt and equities?

Vetapalem Sridhar answers, Hi Nutan, U seem to be doing well. Both U and ur husband should not delay taking up a adequate TERM Insurance cover (especially as u have a loan liability). U can get quotes from various companies for the same, but check up SBI [Get Quote] Shield and ICICI [Get Quote] Pru Lifegaurd WROP, which generally work out to be cheaper in terms of cost. Build sufficient debt to take care of any emergencies (medical or otherwise) and also have 3-5 mths worth of expenses in ur savings bank. Debt can be into FDs or Fixed Maturity Plans (FMPs) from the Mutual Funds. Continue investing that money which u can keep invested for at least 5 yrs into Equities thro the mutual fund route.

vineed asked, Godd afternoon Mr. Sridhar, I am 31, I wish to plan for retirement years. Which plan should I opt for, What Insurance premeium to be paid so as to receive comfortable income after the age of 55 years?

Vetapalem Sridhar answers, Dear Vineed, instead of an Insurace based investment plans, it would be more wise to invest into Diversified Equity oriented Mutual Funds to build a sufficient corpus for ur retirement. Take an Adequate TERM Insurance cover. Invest ur savings thro a SIP into MFs.

kuldeep asked, Hello Sridhar, i am working for last 3 years after completing my Btech i have recently purchased a house on a loan of 12 laks...now i am planning to do a Executive MBA from a reputed B school and the fees is very high upto 7.5 laks i have approached many banks for loan and none have passed it. my home loan is blocking the way for the education loan...what would you suggest me on this situation?...THanks.

Vetapalem Sridhar answers, Dear Kuldeep, generally reputed B-Schools have tie ups with banks to provide Education Loans to the students. I think u should approach the B-School Authorities who may be able to guide u further.

abcxyz asked, Please give name of few good diversified equity funds irrespective of Market Cap.

Vetapalem Sridhar answers, Fidelity Equity Fund, JM Equity Fund and HDFC Growth Fund.

gikky asked, hi, i earn 5 lacs per annum, tell me that is it better to invest in flat/plots or invest in the shares of real estate companies ( like DLF etc). I am only looking from investment point of view, i already have a house of my own to live in. Also, how will real estate investment like flat/plot compare with equity investment in good companies over the long run?

Vetapalem Sridhar answers, Both real estate and equities r high growth asset classes. In the long run equities can deliver 14-16% annualised return whereas real estate should be able to deliver 12-14% return. If u have enough financial resources it makes sense to diversify investments across both assets.

kishore asked, Hi Sridhar, I am working in a private company and take home pay is around Rs.15,000/-. I am aged 45 years and will be retiring in another 13 years. Please suggest some good schemes/scrips from which I can earn 10 to 12% interest p.a. This should be a safe investment. I can invest around Rs. 5000/- every month. I cannot afford to lose any money.

Vetapalem Sridhar answers, Invest into diversified equity Mutual Funds. Reliance Vision, HDFC Growth Fund are some of the better managed schemes. Invest into a SIP with a 10 yr horizon. In short run there maybe volatility, but it will create gud returns over this tenure.

raja asked, pl let me know a MF where i can save my tax?

Vetapalem Sridhar answers, ELSS Mutual Fund Schemes. Some of the better managed ELSS schemes are Sundaram Tax Saver, Principal Tax Savings Fund, HDFC Tax Saver.

trial asked, Hi, I'm 31 yrs old and I'm investing 25k pm towards SIP from Feb this year (Sundaram BNP Paribas Capex Opp, ING - L.I.O.N. Fund, HSBC - India Opp, JM - Equity Fund, Franklin - India Oppt Fund- 5K for each) .How many years shud I invest the same amt to be a crorepati. And how much can I get back everymonth after I discontinue to contribute to SIP without taking back the money from the MF?

Vetapalem Sridhar answers, U do not have a strong core portfolio. U should look at adding 2 large cap/ diversified funds. Reliance Vision, HDFC Growth Fund and Sundaram Select Focus. This would lend stability to ur portfolio. Sector funds r best avoided. If u do an 25K p.m. SIP u should be able to accumulate 1 Cr in roughly 12 yrs (assuming a 15% annualised growth in investments). u can roughly do a (systematic withdrawal) SWP of 1% p.m. from the corpus of investments.

Archana asked, Hi Am Archana from chennai. am planning to take up life insurance policy for my mom, like yrly 15k which is the best option plan? frm which concern? birla sunlife, bajaj or any other option can u gv me? kindly reply.

Vetapalem Sridhar answers, Dear Archana, is ur mom earning some income and is anyone dependent on that income? If the above is true only then would it make sense to take insurance for ur mom. If u r looking at an investment option then the returns in insurance is not so gud. If u have a long term horizon then it would make sense to invest the money into Mutual Funds thro the SIP route.

mustu asked, Dear Vetapalen i am working in the gulf my age is 24 yrs and i save around 55k INR per month. i am single i have invested 3 lakhs till now in lumpsum in mutual funds and i have a sip of 25k going every month in HDFC top 200 g ..... so what do i do with my money i save every month should i invest all in MF or waht? please advise.

Vetapalem Sridhar answers, U have not mentioned ur objectives in life - like when u plan to buy a house, marriage plans etc. This is wat u should focus on, accumulate funds to pay for downpayment when u plan to buy a house. Also u need to create some funds for ur marriage. Estimate this need and collect funds into an FD. Remaining savings which u would not require for at least 5 yrs or more u can invest into MFs.

Part II: 'Financial freedom is a relative term'

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