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What is the best way to plan for your child's financial future? What kind of investments should you make to achieve your long-term as well as short-term goals?
Should you prepay your home loan or invest in another property? How should you plan your finances if you want to buy the dream house you have always yearned for? What is the right way to start investing in a pension plan?
Financial planning expert Vetapalem Sridhar answered these and various other financial planning related queries during a chat hosted for our readers on October 21.
For those of you who missed the chat here is the unedited transcript.
vineet asked, I am 27. Working in a reputed company. my take-home after all cuts (PF, Tax, etc) is 33,000 per month. I have a loan EMI of 7200 per month. What kind of investments should i make for the long term and short term?
Vetapalem Sridhar answers, at 2009-10-21 14:26:17Hi Vineet, first of all u need to plan and take care of ur short term requirements. If the loan is a PL and not a Housing loan u need to first work on clearing it. If u r not married then u need to start to build some fund in a safe place for that. For this bank FDs is a more suitable option. Estimate any other requirements that will come up over the next 3 yrs and create money in a safe place for that. U also need to plan for adequate TERM Insurance cover. When u should take this cover would depend on a number of factors. Other than this, u can do a mthly SIP into a diversified equity Mutual Fund of a comfortable amount that u can set aside with a 5-7 yrs horizon.
Ebenezer asked, I am 32, I am bless with baby boy,what kind of inverstment is good
Vetapalem Sridhar answers, Dear Ebenezar, congrats on the new arrival. Never let emotions interfere in investment decisions. There will be a lot of people who would suggest u to go for a Child Insurance plan. I can safely say that it is best to stay away from any investment option that has been tailor made for a child. Generally they turn out to be more expensive that most other investment options. The best approach is tht parents should take up adequate term insurance cover to ensure that in case something happens to the parents the child's future is taken care by covering the financial risk thro a TERM Insurance Cover. Once this is in place, then u must look at selecting the best investment option keeping the objective in mind. As the child would need money after 17 yrs for higher education, the horizon is very long. With this horizon in mind it would make sense to invest the money into equities via diversified equity MFs. U can look at investing some money regularly into a fund like HDFC growth, DSPBR Top 100, Sundaram Select Focus, etc.
Neha asked, Hi, I am 31.I have a home loan with balance 18 lakhs and need to repay for the next 8.5 years. I have savings of 5 lakhs. Should I pre-pay my loan using these savings or should I invest in equity.Please suggest
Vetapalem Sridhar answers, Dear Neha, u should let ur EMIs go as per schedule and invest ur savings wisely. With a 5-7 yrs horizon u can make gud returns by invest money into equity MFs. If invested at current level over a 5 yrs horizon mkts should give annualised returns in excess of 15%. If u hv a housing loan with ICICI bank and they r still charging u 12% rates, u can go and negotiate with them to reset the rates to a lower level. I know this because I hv helped a lot of people in this matter.
rahul asked, I am 31 year, married and blessed with 3 month old daughter. I want to save 50 lakhs towards her education in 20 years and 1.5 cores towards my retirement in 30 years. I have invested 1.3 lakhs in HDFC LT advantage in the past 2 years. I have started a sip in HDFC Top 200 for 5000/pm for a period of 20 years and HDFC growth for 4000/pm for 30 years. I have a term plan for 25 lakhs/30 years from LIC and health insurance (family floater) for 5 lakhs from reliance. Please advice if this plan will help me in achieving my financial goals.
Vetapalem Sridhar answers, There is one change which will immediately add value to u. Get urself a TERM Cover from ICIC Pru Pure Protect Elite for a same or higher cover but for a 15 yrs TENURE. In 15 yrs if u plan properly, the need for a insurance cover would not be there. This will reduce ur yrly premium by 30-40% annually. Once u hv this cover in place u can stop the LIC Term Plan. Rest things seem on track. Over time as incomes increase do increase amts that u invest. It may be a wise move to include 2 funds from different fund houses.
rai asked, Sir, I am married recently,my take home salary is 35k per month and my wife's take home is 20k per month.what should be our investment plan in order to buy a house in next 5 years?
Vetapalem Sridhar answers, Hi, in case u hv or can arrange around 3-5L from ur family (personal loan is not a gud idea), I would suggest that u should buy a smaller property with a value of upto 22-25L. Currently property rates r still relatively on the lower side. U can take a loan of around 20-22L. Over the next 5 yrs u should save some more money as incomes rise. Then when u r in a financially stronger state u can sell this smaller property. After clearing the loan the surplus money should be used as downpayment to take a bigger property of ur choice.
jpr asked, Can u tell me about the health insurance for the person age above 60.
Vetapalem Sridhar answers, The best option for that is to go to public sector general insurance company for this. Most private player would be very expensive or reluctant to provide health cover at higher ages.
pm asked, HI, How insurance is to be treated in financial planning
Vetapalem Sridhar answers, There sole purpose of insurance is to cover risk. Just like in a health cover or a vehicle insurance u get money only if something goes wrong, similar should be the appraoch towards life insurance. For this purpose TERM Insurance is the best option which should definitely taken by everyone who NEEDS life cover to protect family members who r financially dependant on income from the earning member.
sunilmodi asked, looking for a invetsment plan for a 8 year old boy
Vetapalem Sridhar answers, Dear Sunil, dont focus at a Plan for a 8 yr old Boy. Otherwise u will directly go for a CHILD Insurance Plan. Instead focus on the need i.e. money for education which is needed after 10 yrs. This gives u a clear 10 yrs timeframe in which to build adequate resources. U will then evaluate which is the best option given the objective and timeframe. Equity Mutual Funds should be ur choice.
fiza asked, i am 26 year old earning 7 lacs annually, Have bought a flat recently for which I pay 18000 EMI. My expenses are still low and after the expenses and EMI deduction I still save upto RS.25000 per month. How best I can invest this amount.
Vetapalem Sridhar answers, Hi Fiza, U r in a gr8 state Financially. Get urself adequate TERM Cover to cover the loan if it is not already covered. Of the 25K invest a major chunk of it into diversified Equity Mutual Funds with a 10-15 yrs focus. U hv the potential to achieve Financial Freedom relatively earlier in life. Asset Allocation as explained by link below should be the guiding principle to help u invest wisely. http://www.sec.gov/investor/pubs/assetallocation.htm
jazzy asked, Hi, Whats the right to start investing in pension plan
Vetapalem Sridhar answers, Hi, Existing Pension products r highly inflexible. Although it ensures discipline (the problem which most people face), there r better alternatives available thro which u can create more wealth in the long run. If invested with discipline (just like u would in a pension plan) Equity oriented MFs would be a superior alternative to create wealth over the long term.
Hari asked, My age is now 24, im earning 30K p.m and im having a housing loan of 10 lakhs for 19 years at interset of 10.25% with EMI of 9900 p.m. Im started putting all my money as prepayment of hosue loan on every quarter.i have taken insurance plan for 30000 p.a can you please tell me the investment options that i can best opt for?
Vetapalem Sridhar answers, Dear Hari, owning a house at such a young age is a gr8 achievement. As age is on ur side, i would suggest tht DO NOT prepay ur housing loan. Instead start to save tht money and create some amount into a safe place for requirements that will come up in the next 3-4 yrs. Other than that start a mthly SIP with a 20 yrs focus into a fund like Reliance Equity Advtg Fund, HDfc growth fund or DSPBR Top 100. U should over time look at stopping ur insurance investment and instead take up an adequate TERM insrurance cover.
Vikrama asked, Hello. I earn 70k per month. I want to buy a house. Costs are around 50 lacs. At 10.5 % and using savings of around 10 lacs, per month EMI would be around 45k. Would this be a good decision? My wife is not earning and we plan to start a family in 5 years time. I have dependent parents too. I live in Chandigarh.
Vetapalem Sridhar answers, To be frank Vikrama, it will be a stretch if 70K is ur pretax earnings. If it is post tax then by all means go ahead. U should also leave some room for higher EMIs in case rates go up in future. Ensure that u hv a term cover which not only covers the entire loan, but also creates enough financial support for ur family in case something happens to u.
anakin asked, I am 30 and plan to retire by 55... How do I plan my retirement assuming I have done no planning till date.
Vetapalem Sridhar answers, Dear Anakin, first of all u should start spending time trying to understand about investing and wat financial planning is all about. There is lot of reading material available online. Once u start to understand stuff in this regard u should get in touch with a Financial Planner and with him draw up a Financial Plan which would help u meet ur goals. The knowledge building at ur end it critical so that u know that the Planner is doing his job sincerely and not taking u for a ride. It is worth even spending spare time for a yr to learn, before u go to a Planner.
Deep asked, Hi Sridhar, have daughter she is 2 years old. I want to plan for her higher education and marriage. around 25-30 lac. Please suggest what are the various options. I am mainly risk averse.
Vetapalem Sridhar answers, Dear Deep, the is risk of an accident happening when u r travelling on the road. And if u r risk averse do u entirely stop going on the road? No. Why? Wat do u do to reduce this risk. U wear a Helmet or put on ur Seat Belt. Similarly when u r investing it is OK to be risk averse. But inspite of this u need to put in a part of ur savings into higher growth assets which have a higher risk. Like the helmet or seat belt u can reduce or mitigate this risk by understanding how to manage this risk. One sure shot method is to invest in gud reputed comapnies and have a 10 plus yrs horizon of investing. Investing into Index Funds would be an ideal option for investors like u.
Thope the Cannon asked, Sir, can you please suggest any wealth managment agencies? I earn 60k per month but do not have savings, shares or longterm investment, I am 34.I just have couple of lic policies and my company's pf. I did buy a house though. I want to take help of a professional to invest around 25k permonth.or can u suggest some sure shot profitable options? thanks
Vetapalem Sridhar answers, The most important thing that u should look for in a advisor is whether he/she is genuine and working in ur interest or not. I cannot comment on other agencies as I do not know them. I can only be sure about myself. A simple truth in investing is that it is your money and hence YOU r finally responsible for it. Never blame any advisor or others if ur money fails to grow. U r finally responsible for the success or failure of growth of ur money.
shan asked, Hi, I am 31 and have a child who is 1 yr old. what investment options do you suggest for the child's future ? equity funds or equity and debt mix ? or a balanced fund ? .Also, i have taken an LIC policy of 3lacs sum assured for a tenor of 20 yrs. is this sufficient or should i increase the sum assured?
Vetapalem Sridhar answers, Hi Shan, I hv already answered similar queries. Get urself adequate TERM Insurance cover and stop the LIC policy after that. 3L is too small a cover to provide any meaningful support to ur dependants.
dm asked, Hello Sridhar, what kind of investments are good for my 13yrs old kid. I need it for for college after 5 years. I am 43 and have a take home payof about 70k
Vetapalem Sridhar answers, As mkts r expected to go up over the coming 5 yrs u can put in part of planned savings for ur kid into a Recurring Deposit with a bank and part of it into a diversified mutual funds thro a SIP. If sensex crosses 30K at any time within this period exit all money and make a FD of it.
fg asked, Hi, I am 25 Years old and my takehome is 55,000 Rs per month. And I do invest in Equity. Please let me know if i need to start planning for any other investments as well. Thanks in advance.
Vetapalem Sridhar answers, Hi, I hv already put a link on asset allocation in one of my previous answers.....read thro it....
Ankit asked, I am 23 and will be starting work in a reputed company in Nov 2009. My take home salary after all cuts will beRs. 39000/- pm. I plan to go abroad for an MBA after 3 years. I will be needing education loan and some liquid money at that time. What would be the best investment option so that I get good returns as well as tax benefits?
Vetapalem Sridhar answers, Save major part of money in a Bank FD. A small part of the savings can be invested into a SIP in funds like HDFC Growth, Reliance Vision, DSPBR Top 100. If u invest money for tax benefits it will get locked in for 3-5 yrs and u will not be able to access it when u need it.
priti asked, I have got Rs.20L right now available with me for investment. How should I invest this amount!!!!
Vetapalem Sridhar answers, Experts in the Mkts r predicting that there maybe some kind of a correction in the coming mths. If such a correction happens then investing at money at that time would be a very wise move. If u hv a clear 5-7 yrs horizon u can invest a major portion of the money into equities. U can expect returns in excess of 15% annualised over this tenure.
deepvarsha asked, I am not sure about the logic of exiting from MF. It is said that you should be invested for at least 4-5 years to reap gains in MF. But I fail to understand why I shall not exit from a particular scheme when it has grown my money from 22424 to 38000 in two years as market will keep fluctuating and my profits will keep playing vanishing games with me.
Vetapalem Sridhar answers, Good Point. Just a simple question: Wat will u do when u exit money from the fund? If u r going to use it then gr8. But if u r going to reinvest it, then wat is the point in exiting from an existing investment?
accent asked, Hi, I have a fundamental query on the tax benefit currently accrued on Housing loan. Have got to hear that the same will be withdrawn post 2011, pls clarify!
Vetapalem Sridhar answers, The status on that is not clear. A lot of changes r being proposed in the direct tax code from 2011. It however does not make sense for us to speculate about wat those changes would be and take current decision based on the proposed changes. Hv patience and with time we will know wat is going to happen regarding tax laws.
Shrutie asked, Hi Sri, I'm 26 & my monthly salry is around 27 K in hand. I havn't started any investement till yet. Pls suggest what kind of investment i should go for & what should be the investment amount.Thanks !!!
Vetapalem Sridhar answers, Start saving some money into ur bank and also start a mthly SIP of a small amt like 3-5K into mutual funds. U can look at investing into HDFC Growth, DSPBE Top 100, Reliance Vision fund. Start spending time to learn about investing and investment options. However do not take any decisions based on the knowledge u acquire for atleast a yr or so. Over time u will understand investing and will be better positioned to decide a suitable course of action.
mango asked, I had invested in FD about three years back so as to meet my requirements of November 2009. I had also invested in stocks during market slow down (Sept.2008). Current value of shares is more than my Nov. 2009 requiremnts. Now my question is which money to redeem for my Nov.09 requirements (FD or shares)? I can take moderate risk.
Vetapalem Sridhar answers, It may make more sense to withdraw partly from both. Just a thought.
junior asked, hi sridhar,is personal loan transferable from one bank to another just like home loan? thank u
Vetapalem Sridhar answers, U will hv to pay prepayment charges to the existing bank before u clear the loan. It does not make sense.
jinesh asked, ***************sir, which bank offer Housing loans at lowest intrest charges. *****************
Vetapalem Sridhar answers, Dear Jinesh, dont go for any of the special schemes announced by some banks - like the 8% housing loan rate for 1 yr. This rate gets reset to a higher than market rate at the end of the first year for the rest of the 15 or 20 yrs tenure. Public sector banks like BOB, PNB etc would offer most competitive rate of around 9-9.25% depending on tenure and amount of loan. But here paper work is cumbersome. Private players with easier paperwork and efficient processes would offer loans at a marginally higher rate.
pandurang asked, I am 28 year old man, married recently, my take home salary is 31K and my wife take home is 22k, we want to buy a 2 BHk flat around 30lakh ruppes, for this we are planing to sell the gold worth rs 1.3lakh which is with us and planning to arrange 3lakh from family members. does this is right time to go for it or we should think it after some time?
Vetapalem Sridhar answers, Hi, if u see both ur incomes stable for the next 3 yrs (wife will continue to work till then), then u can go ahead with the decision. When u take a loan take a joint loan and also the property should be on joint name. Both of u should get adequate TERM Covers when u hv the loan.
neetu asked, Hi Sri, my age is 29 & my hubby is 33, we have an 18 mth old daughter, my hubby has a LIC policy of 10L in the yr 2005 for which we have to pay 25755, every yr, we had applied for a term insurance in Birla Sunlife Insurance but due to some reasons it got rejected, we are going to apply again in the nxt 6 mths. My ques is should we get rid of this LIC Policy since fron this yr we are receiving 21000 as money back which we will be receiving after every 2 yrs, that means i am paying 4755/- this will continue till 2020?
Vetapalem Sridhar answers, Makes sense to stop the LIC policy. But before u do that get the TERM Cover in place. Try with ICICI, Religare, Reliance, Kotak and HDFC for a term cover. No need to go back to Birla.
Vetapalem Sridhar says, Thats all for now Friends! Will catch up with u later to answer more queries.....
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.