15 February 2013

Do not buy insurance policy to achieve targets :: Business Line


I am 56, working in a Central government organisation. I would like to start investing in three funds, each Rs 5,000, starting from April 2013. Later on, from April 2014, I may add another Rs 10,000 through two more funds.
My investment horizon is 7-10 years. My aim is growth. Please suggest some suitable funds from reputed houses. My risk appetite is medium.
Madhu Pillai

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It is nice to note that you wish to invest in mutual funds even at such a late stage in your career.
But you must also assess your risk appetite quite thoroughly before taking the plunge.
You will retire in another four years. But you wish to invest for 7-10 years in mutual funds, which goes well beyond your retirement timeline. You have stated that you would also like to step up your investments in 2014.
It is important to note that after your earning days are over, you must park your surplus in safer instruments such as fixed deposits, recurring deposits, five-year NSC and, if possible, debt funds. This process will protect your surplus and give you a steady income.
If you are likely to receive a pension post-retirement and all your medical expenses are covered by your employer or any another medical insurance policy, then you can take marginally higher risks by parking some portion of your surplus in equity funds.
Even then, you must not invest more than 30-35 per cent of your portfolio in equity mutual funds.
Given your age, we would suggest a rather conservative portfolio which is likely to give you reasonable “growth”, but not top-of-the-chart returns.
Invest Rs 5,000 each in Franklin India Bluechip, HDFC Balanced and Reliance MIP.
The portfolio is a mix of funds straddling large-cap, balanced and a monthly income mandates.
Gain some experience in investing over the next few years and if you are confident, you can take a greater exposure, provided you have made adequate investments in debt instruments, gold and real-estate.
If you wish to invest further in equity funds, take exposure to Quantum Long Term Equity and UTI Opportunities, two schemes with a very good track record over the past 4-5 years. Park Rs 5,000 in each of them.
Instead, if you wish to take a conservative approach, invest in Canara Robeco MIP and Birla Sun Life MIP.
Monthly income plans pay a dividend periodically, say, once a month or quarterly (though this is not a certainty), which can act as pension income for you.
***I am 34. I am have been investing in UTI Dividend Yield fund through the SIP (systematic investment plan) mode from July 2012.
Is it advisable to continue investing in this fund? How much will I get after 10 years if I remain invested for so long? I want to invest another Rs 2,000 through SIPs. Please let me know best funds.
U Arun kumar
UTI Dividend Yield is a fund with over a seven-year-track record in delivering steady returns. There has been a blip in performance in recent times, but it may largely be temporary and in any case it is a good fund to invest in for 10 years, over which time frame it should be able to deliver well.
Coming to the second part of your question, it is not possible to estimate how much you will make from your investments as they are subject to market risks.
But we can give an illustration. If you invest Rs 2,000 every month for 10 years and the returns are 15 per cent annually, you will be able to generate Rs 5.5 lakh.
You have stated that you wish to invest another Rs 2,000. Park this amount in Quantum Long Term Equity.
***I am 32 years old and my child is two. I want to create a corpus of Rs 15 lakh, by the time my child turns 18, for his education. I can contribute Rs 2,000-3,000 a month.
I am interested in taking an insurance policy as I do not have sufficient coverage. Is there any policy that can help me attain my target?
Kiran
You have done the right thing by deciding to invest for your child’s future fairly early.
This start will give you the time to attain your targeted corpus comfortably.
Invest Rs 3,000 every month in HDFC Children’s Gift Fund – Investment Plan, a balanced scheme with an excellent track record over the past 10 years. This fund allows you to invest in the name of a minor.
If you invest Rs 3,000 a month for 15 years and the annual returns are 14 per cent, you will be able to accumulate in excess of Rs 15 lakh.
Do not buy an insurance policy for achieving targets as returns are low and premiums are high for traditional plans.
Instead, take a term insurance policy to cover all risks. The premiums are quite low for these products and will cover risks in case something untoward were to happen to you.

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