Below is an edited transcript of his interview. Also watch the accompanying video.
Q: An investor wants to invest Rs 2,000 per month. How can he allocate that money?
A: It is good that he is planning to invest so early for his child's education, which is what I think every investor who is looking to achieve his long-term goal should be following this strategy. When you invest for the long-term specially, when you have a time horizon of 15-20-25 years, power of compounding plays a very important role and there to get the best out it among other factors a very important factor is to start early. So I think he is on the right track as far as the investment strategies or planning is concerned.
But since he has three dependents, my recommendation to him would be that he should make sure that he has adequate risk cover in the form of life insurance as well as health insurance. He has a policy Jeevan Anand, but I am not too sure whether this plan will give him the adequate quantum of cover that he wants. In case there is a shortfall a term plan and also for health plan, he can look at a family floater plan before start investing for this objective.
As far as his investment is concerned, since he has a time horizon of 25 years he can definitely invest in equity funds, especially because he is going to be investing every month so he can set a SIP in two good quality well diversified equity funds. He can consider HDFC Equity and Canara Robeco Diversified Equity Fund . These are two good funds for him. Assuming an annualized return of around 12% over the period of 25 years, he can hope to build a corpus of around Rs 34 lakh. But since his target is Rs 1 crore he will have to increase his amount to Rs 6,000 per month. If he can't do that currently, he should ensure that as and when is possible in future he should try and increase the amount so that he can reach closer to his target.
Q: An investor can invest Rs 12000 per month. I have a Jeevan Anand policy and its yearly premium is Rs 25000 per annum. I do have two mutual funds, one is HDFC Top 200 and I am investing Rs 2000 per month in that and I am investing Rs 2000 per month in HDFC Premier Equity . My time horizon is around 15-20 years and my goal is around Rs 40-45 lakh. How should I allocate the money?
A: Let me just begin with the risk cover you said you have LIC plan Jeevan Anand which is a good plan but I am not too sure whether it will give you the adequate risk cover or not. You need to make sure that you life insurance cover that you have is atleast 10 times your annual income and also make sure that you have adequate risk cover in terms of health, so one should take care of these two things.
As far as your goal is concerned, since you have a time horizon of 15 years, you can definitely invest in equity funds. You are already investing in two quality equity funds; one is HDFC Equity which is multi cap fund and HDFC Top 200 which is predominantly a large cap fund.
My recommendation is that you can include one more quality midcap in your portfolio, which is IDFC Premier Equity . So if I assume a return of around 12% over the next 15 years and if you continue this process for this entire period, you can hope to get a corpus of around Rs 66 lakh. You mentioned about your target is to create a corpus of Rs 50 lakh for buying a house and a car, make sure that you take in inflation into account because if you are talking about today's value then your requirement after 15 years is going to be much more. Like I said, this can only create a corpus of around Rs 66 lakh, I am talking about total investment of this new investment and the two which he is already doing, so rework on the target and see if you can increase some amount, so that you can achieve your targets.
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