How should you invest your money this year? Should you invest it in stocks, mutual funds, real estate, gold etc or go for the safe haven of fixed deposits?

Financial planning expert Vetapalem Sridhar, in an online chat hosted for our readers on July 15 answered these and various other money and investment related queries.

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

Dinesh asked, Hi, At age of 30, i am investing 20,000/- per yr. in PPF & NSE each,43000 per yr in LIC [Get Quote] policies(Jeevan mitra tripl.cov) , 11000 SIP in diversied MF. Is it a good portfolio. What are good MF for 15yr horizone, Thanks
Vetapalem Sridhar answers,  at 2009-07-15 13:55:51It is better to invest thro PPF and discontinue NSC. Create an emergency fund which also covers around 6 mths of living expenses, and keep it in a safe place like a bank FD. Getting ur self adequate TERM Insurance cover is recommended. Once this cover is in place u can review ur LIC policy. Invest money with a long term horizon (10 yrs or more) into diversified MFs like Reliance [Get Quote] equity advantage, HDFC [Get Quote] Top 200, DSPBR Top 100, Sundaram Select Focus, etc to build funds for ur needs like children's future and retirement.

AMAR asked, Heloo Sir, pls tell me I want to invest 1Lac ruppees (either in Mutual Fund or in Share Market), pls suggest me for Max return where I have to invest. I can wait for long time also.Thanks
Vetapalem Sridhar answers, Hi Amar,making consistent higher return should be the focus and not the best return. It is best to stick to large cap stocks or Mutual Funds which invest in them. In case u wish to invest thro MFs u can look at HDFC Grwoth, DSPBR Equity, Reliance Vision, etc...

vicku asked, Which bank gives the best interest rate for FD for 2 years term?
Vetapalem Sridhar answers, The interest rate would vary based on the amt u wish to invest. The difference in rates will be marginal. PSU banks should be offering close to 8% for a 2 yrs period.

nicky asked, Hi VS: i am 29yr old & only earning member of my family, father retired, mother house wife & my wife is also house wife, have 1 baby of 2yrs.......i manage to save rs. 15000/- per month after all expenses ......have opened ppf account + LIC of about 50000/- per year, please suggest a good risk free investment idea's....thanks
Vetapalem Sridhar answers, Hi, U should immediately get urself an adequate TERM Insurance cover. U can get quotes from ICICI [Get Quote] Pru Pure Protect, Reliance TERM Plan, Kotak TERM Plan, SBI [Get Quote] Shield, etc. U need to build a balanced asset allocation plan which would enable u to grow u money at a rate faster than inflation. This would enable u to fulfill ur future responsibilities and needs. For this u must invest some part of ur long term savings into Equities thro Mutual Fund route. Of the 15K start with a 5K mthly SIP into Equity MFs with a 10-15 yrs horizon. Also read thro the following link: http://www.rediff.com/getahead/2007/jul/03fin.htm Asset Allocation - Secret to Financial Freedom

pramb asked, how good is Reliance Growth, Sundaram Select Focus
Vetapalem Sridhar answers, Both r well managed funds and hv done well in the past. Reliance Growth is more focused towards midcap stocks. Sundaram Select Focus is focused towards Large Cap stocks.

terd asked, Sir , for my 2 yr old son, i have invested in max new york life insurance and also opened a kids a/c in bank. What more investements can u advice like LIC , etc??
Vetapalem Sridhar answers, Hi, it is not the best option to invest for ur child thro Insurance based investment options. A bank a/c is a gud idea where u teach the kid the virtue of savings. To build a decent fund for their future the best option is to invest via diversified large cap equity oritented Mutual Funds. Plz read thro the following link: http://specials.rediff.com/getahead/2007/aug/07sli1.htm Investing for children A Slide Show, click NEXT to read thro.

Abhishek asked, Pls suggest me some good short term debt funds for investing for 1 year.how much gain can I expect from them?
Vetapalem Sridhar answers, Hi Abhishek, for a 1 yrs horizon, the best option is to invest into a bank FD. There is a chance that in future there maybe some hardening of interest due to which debt funds may not give the best returns.

Jyothi asked, Hi Sridhar, I had invested in the MF Franklin India Prima fund Rs. 1,10,000 (Monthly SIP for 3 yrs. Ended in July 2008) I want to change the allocation in FTI Prima to FTI Prima Plus, through an STP. But I'm not sure when to start because the returns from Prima is currently negative. Do I wait till I atleast break even before starting the STP? More importantly, is my decision to change the allocation to Prima Plus a valid one? Or, do I hold on to Prima for some more time?
Vetapalem Sridhar answers, Hi Jyothi, is this the only fund in ur portf? If yes, then invest into a large cap fund thro a SIP in future. It maybe a better idea to hold onto Prima fund and switch it entirely when mkts r at relative highs. This may take a few years. In case u hv other large cap funds in ur portf u should continue with the SIP.

00 asked, Dear sir, do we get a tax benefit if we purchase a residential plot, instead of a residential house ?
Vetapalem Sridhar answers, No, just for a plot not tax benefits. But if u construct a house on this plot within a specified time u can then get tax benefits on the housing loan taken for the purpose.

Koti asked, I am 32 with my wife(not working) and two kids (4, 1), Investing 14000 in MF (Reliance Growth, HDFC Equity, Fidelity Equity, Franklin Templeton Bluechip, SBI Magnum Umbrella -Contra), 30000 in PPF, 66000 in LIC (Jeevan Anand). My monthly income is 60000 Rs. My monthly house hold expenses are 25000 Rs. How is my financial planning? Please give me necessary suggestions.
Vetapalem Sridhar answers, Hi Koti, get urself adequate TERM Insurance cover immediately. Once u hv this u should relook ur LIC policy. It maybe a better idea to divert part of this money into ur PPF a/c. Ur MF portf is gud. Ur savings ratio is gud.

venkat asked, are children's eductation plans any good or is it better to for diversified mf ?
Vetapalem Sridhar answers, Dear Venkat, the cost structure in Children's Edu Plans r generally higher. Due to this the long term returns take a hit. It is much wiser to build funds thro diversified MFs. In case of MFs invest the money on ur name and add ur child as the second holder where ur spouse is the gaurdian.

ased asked, hi sridhar whats ur view on index funds .which one do you recommend .I am investing in diversified mf .should i stop and invest only in inex funds or etf ? which is better index funds or etf ?
Vetapalem Sridhar answers, It is definitely a gud strategy to build the core part of ur portf using Index Funds. If ur horizon is long term, the both ETFs and Regular Index funds should be gud (as from Aug'09 entry loads r abolished). In case ur existing funds r large cap funds then there is no need to replace them.

saurabh asked, i want to know about govt. new pension scheem. can u help?
Vetapalem Sridhar answers, http://www.pfrda.org.in/writereaddata/linkimages/Offer%20Document957798914.pdf This link will lead u to the offer document which contains all details regarding the NPS. It provides gud clarity on the entire scheme.

ram asked, would you suggest investment in reliance diversified power sector? is it too risky? can we dedicated a small amount to it?
Vetapalem Sridhar answers, Hi Ram, the core part of ur investment portf should consist of large cap diversified Funds. In case u understand a particular setor well and wish to hv higher presence in it, u can allocate a small portion (say 5% of portf) to that particular sector using a sector fund.

v asked, have 5 lacs in pf and ppf/ 20 lacs in mf and 10 lacs in equity. like to retire in 10 years looking at 2 cr. kindly advise if i invest another 20 k per month for next 10 years is ok. life span is 80 yrs. family of three .
Vetapalem Sridhar answers, Assuming u invest around 20K p.m. for the next 10 yrs over and above the existing 30L equities, u should be able to accumulate 1.8 Cr. So if u include ur debt part, u maybe able to achieve ur 2 Cr trgt.

ajay asked, We have bought a apartment. It is registered with my father's name and I am paying some percentage of money for this apartment. I am paying proper income tax to Govt of India on my earning. Is there any complication due to Income Tax point of view in this process as I am paying some money on behalf of my father ? Does he need to declare this thing somewhere or it is absolutely fine for son to pay the money on behalf of his father.
Vetapalem Sridhar answers, Hi Ajay, there should not be any problem in ur case. The money given to him can be shown as gift. There will be no problems on the tax side.

asf asked, i would like to invest INR 5000 per month through MIP. Can afford medium - high risk. Suggest me a good mutual fund and scheme.
Vetapalem Sridhar answers, It is SIP. U should invest into 2 funds from among options like HDFC Growth, DSPBR Equity, Reliance Vision, Sundaram Select Focus, etc.

Sameer asked, Sir, My PPF Account is about to mature. Where can I park lumpsum money with risk free rate of interest without being taxed on returns
Vetapalem Sridhar answers, U can keep extending the tenure of amt lying in PPF in blocks of 5 yrs. U can keep the money there as long as u want. Returns there r not taxed.

sam asked, Dunno why guys make statements like 'U should immediately get urself an adequate TERM Insurance cover'... First question should have been is father retired... If so does he get a pension... If so how much... Then next set would be u r 29 years of age meaning you have worked for 7-9 years... So what are your savings... Then blah blah blah... My 2c
Vetapalem Sridhar answers, Dear Sam, there is a reason for the word 'ADEQUATE' being mentioned in the sentence. As complete info is not provided, it is the responsibility of the individual to estimate the amt of insurance reqd. This amt can also be zero, i.e in case there are existing financial resources available with a person, then insurance cover may not be needed at all.

BM asked, We are husn=band wife 37 years each earning 70k per month together. We have cash savings of approx 6-7 lakhs What instruments would your receommned for a approx return of 12-15% per year we have a daughter of age 4.5 years
Vetapalem Sridhar answers, U will need to maintain higher allocation to equities. Assuming a return of 16% in equities over the long run and 6% tax free return in debt, u will need to maintain a 60(equity):40(debt) ratio to make a 12% return over the long run. In debt u can look at PPF and bank FDs. For equities u can look at diversified equity MFs.

pramb asked,  I am trying to build portfolio via SIP of 12000 in HDFC TOP 200(large Cap), DSP BR TOP 100(large Cap), Birla SL Forntline Equity(large Cap), Sundaram Select Focus(large Cap - Aggresive and risk), Reliance Growth(mid-cap) and ICICI PRu Infastructure(sector) and one GOLD ETF Fund. Please suggest whether these are right choices
Vetapalem Sridhar answers, The portf seems gud.

George asked, Hello Sreedhar, I am an NRI, and I have Rs.10 lakh as cash, ready to invest. Pls advise me on the best course of action
Vetapalem Sridhar answers, Hi George, if u hv a clear 7-10 yrs horizon to invest this money, then I would suggest tht u can invest majority of this money into large cap diversified at current levels of the mkts. Over this tenure u can expect to make an annualised return of around 16-18%.

abinashg asked, Is it better to invest at current level in Real Estate(Powai) or invest in Equity(Blue chip co.). taking consideration of around 20 years. Also taking of rent paid if invested in Equity. Whats your call???
Vetapalem Sridhar answers, If ur Financial sitaution is comfortable, then buying a property to live maybe a more practical decision. Financially speaking a more closer analysis will be needed. It would depend on how much u spend to buy a house now and how u finance it. Returns for equities over 20 yrs can be projected. Similarly in case u stay on rent wat kind of property will u stay over 20 yrs and how much rent u would pay for it.

Devineni asked, ULIP is better or MF is better for short term... what are best one in the present market to invest ?? I am planning to save 1 lakh per yr.. Pls tell me Better ways/multiple ways to invest on segrigation..
Vetapalem Sridhar answers, Equity Option of neither is better for short term. U should invest with a 7-10 yrs horizon. A combination of a TERM Cover and Mutual Fund investment would be a better option than a ULIP. Do not put all money into equities. Build some debt too. In case u need to invest for claiming tax benefits a combo of PPF and ELSS Mutual Fund would be ideal.

ketan asked, I have income of nearly 60000 per month . And can save arround 30000 per month and may be more.. can u please suggest some investment plans? I have 3 sips, 2 sbi magnum contra, 1 reliance ELSS (each with 500rs per month), have investment in mf around 50000rs/- also have ppf account but not have used it too much. only 20000rs/- is in ppf acnt.. please give some advice how to invest. Yes Also I am paying 30000 to LIC, 15000 to TATA, 18000 to HDFC young star insurance, 12000 tO SBI INsurance.
Vetapalem Sridhar answers, Dear Ketan, too many insurance policies. U should look at replacing atleast 2 of them by taking up adequate TERM Cover, and increasing ur investments to ur PPF and Mutual Funds.

natkhatabannerjee asked, I am natkhata bannerjee , an east indian from West Bangal and earning 10000 Rs pm. Since I live in WB , inflation is low and am single. I save 4200 pm. I wish to get married in 3 years time and wish to save to get 2 lakhs for the marriage . How should I go about saving. Pl ease give me your honest advice for the same. Thank you
Vetapalem Sridhar answers, Of the savings invest 2500 into a Mutual Fund like HDFC growth or DSPBR Top 100 by doing a SIP for a 3 yrs period. For the rest of the amt do a Recurring Deposit in a bank.

Vipin asked, i am 19 yr old, doing my BE and part time freelance work online, recenly 18 lacs in mutual funds(8 lac icici infra,1 lac Reliance Infra, 1 lac Birla Sunlife Frontline,2 lac Birla Freedom,5 lac Reliance Regular Saving,1 lac sundaram capex oppurtunities ) I had mostly made all investment when the market is @ 11000.Presently i am having 25 lac more in mine hand,i am really in lot of tension what to do with money,either upgrade my alto to accord, or invest in MF for future, or invest in FD :(. Plzz Help me out, still 2 yr left out for mine Engineering to complete :(
Vetapalem Sridhar answers, Dear Vipin, at a young age u r managing a lot of money. Plz be careful about different people advising u about it (especially related to insurance based investment options). I do not think it is wise to buy a accord when an alto serves ur purpose. I would suggest that u should put a sizable part of the 25L into a Bank FD. This can be used for ur Higher education. A small part can be invested into the Mutual Portf that u already have. Hv a clear 7-10 yrs horizon for remaining invested in equities. Along with ur engg, start studying about investing.

Swara asked, Hi, I can save 30K pm after all our expenses. 5k is the SIPs for HDFC Top 200 and DSP top 100 fund (3:2). We have certain money back LICs with 70k of yearly prem. The first money back is due this year. My qns are: 1. M planning to exit moneyback after this year, as the prem is v high and planin to buy a pure term cover for both of us. 2. planing to build a cash fund, please suggest how to. 3. Planning to swtch home loan from HDFC to SBI to reduce the EMI
Vetapalem Sridhar answers, 1. It does make sense to exit Moneyback policy and take up a TERM cover. Look at ICICI Pru Pure Protect, Reliance TERM Plan, Kotak Term Plan and SBI Shield. 2. Save money and do a FD. For very long term, u can put money into ur PPF a/c. 3. Not a gud idea to switch the loan. SBI looks attractive, but is not. Go and talk to HDFC and see if the rates can be reduced. Currently floating rates vary between 9.25-10%.

Milan asked, Dear Sir, I am 27 years old monthly income of about 50000 not investing anything on monthly basis as of now. I have cash in hand of about 150000 and FD's maturing in Oct of about 1 lac i want to park all rthis monety for limited period till i get a house to purchase where should i park the same. I have life insurance cover of rs 35 lac term insurance. Where should i invest monthly for my retirement
Vetapalem Sridhar answers, To save money for the downpayment for ur house, u should do it thro FDs in bank from ur regular savings. For building long term money for ur retirement needs u should do it thro diversifed Mutual Fund investments via SIP.

RajN asked, I have invested in DWS alpha Equity, and reliance RSF. The DWS alpha does not react to market up and down as RSF, so if the market goes up you dont see much gain in DWS alpha equity, Should I hold no or should I switch to some other fund.
Vetapalem Sridhar answers, DWS Alpha Equity plays the role of the core part of ur portf. It brings stability to ur portf. RSF is an aggressive fund and its role to deliver higher returns by taking higher risk. In falling mkts, the core part of the portf brings stability by falling less than the mkt. So maintain both funds.

alok asked, hey i am a fresh engineering graduate and wish to take care of my parents investments as of now... mainly i wish to invest in the stock market...please advice
Vetapalem Sridhar answers, Hi Alok, it may not be a wise thing to do. It does not look like u hv handled the responsibility of money till now. A person with no experience and understanding about stocks is bound to make a lot of mistakes. Especially if it the entire life savings of ur parents that u wish to invest in stocks. I would suggest that plz ensure tht all decisions are taken by ur parents regarding their money. Only a small part of their money should go towards equities. If u wish to invest into equities, invest thro Mutual Funds and remain invested with a 7-10 yrs horizon.

Shweta asked, What do you suggest about making a financial portfolio through a certified financial planner and are they are as proffesional as like Advocates and CA, please revert it's IMP
Vetapalem Sridhar answers, The job of a Financial Planner is like that of a Family Physician. Generally they can take care of most of the needs of an individual. However for certain specialised requirements u maybe guided by them to an expert. For long term success regarding ur financial mgmt, it is important to find a advisor who will work in ur interest rather than work in the interest of his/her business. U will find both kind of advisors. Also plz remember that it is ur money and u hv to take full responsibility for wat is happening to it. So be involved and learn about investing. It will ensure that ur advisor will always give u genuine advice. U can be taken for a ride only if u r IGNORANT.

Vetapalem Sridhar says, Thats all for now Friends! Will catch up soon.....

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