Investing with pocket money :: Business Line

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

I am a final year undergraduate student. I am planning to invest in mutual funds from my pocket money. Please suggest some funds in which I can invest also let me know the procedure for the same.

— Sharad

We commend your interest in investing at an early age. First apply for a PAN card. That will be essential to get ‘Know Your Customer' (KYC) compliance, which is a must for investments in mutual funds. Once that's taken care of, you will need a platform to transact in mutual funds. If you are an avid internet user, then you can open an account with online fund platforms such as ‘Funds India' or ‘Fund supermart'. Otherwise, you can approach any of the well-known distributors such as Bajaj Capital, Integrated Enterprises or any of the brokerage firms. Banks too sell mutual funds. But do not blindly invest in the fund that banks offer, as many of them will try to sell their own group company schemes. Once you decide on the vendor, they will take you through the procedures.

Take a systematic investment plan for a sum that you can comfortably spare every month.

To start with, you can invest in HDFC Equity and Reliance Equity Opportunities. The former will need a minimum SIP of Rs 500 a month. If that is tough, start off with the Reliance fund mentioned above. You can invest as low as Rs 100 a month in this.

Both these funds invest across market-cap segments and hold a sound track record. You can expect a compounded return of 15 per cent annually in these funds over a 5-year period. Take up the growth option so that your money grows. If you have surpluses, you can systematically invest in Reliance Gold Savings Fund. But make sure that your investment doesn't go beyond 10 per cent of your total SIPs.

Check the performance of the funds once a quarter. You will get monthly updates from the fund houses in the form of factsheet. Keep the SIPs live for not less than three years and try to increase them if you can save more.

Do not get lured by new fund offers that distributors may try to push. Regularly read about mutual funds in newspapers, magazines and fund Web sites.

***I am 43 years old and work in a public sector company. I have been investing in the following schemes over the last one year and can continue the SIPs for 10 years: Rs 5, 000 a month in ICICI Focussed Bluechip Equity, Rs 8,000 in Birla Sun Life Dividend Yield Plus and Rs 6,000 in IDFC Premier Equity Plan B. Please suggest changes if required so that I may secure Rs 1 crore after 10 years. My risk appetite is above average.

— M.N. Raju

Your goal of Rs 1 crore is rather stiff, given the ten-year time frame. If your SIPs of Rs 13,000 a month in diversified fund deliver 15 per cent annually and the mid-cap fund SIP of Rs 6,000 manages a higher 20 per cent a year, you will have only Rs 47 lakh in 9 years.

We prefer that you build your goal at least a year before you need it.

You will need about Rs 29,000 a month in diversified funds and Rs 12,000 in mid-cap funds to manage Rs 1 crore. That means you will need to save Rs 22,000 more every month. If that looks too daunting you have two more options.

INCREASE GRADUALLY

One, your current investment may deliver your goal in 13 years instead of 10, if you can wait till then.

Otherwise, gradually increase your SIPs in the following manner: your current choice of funds is good. Continue them. See if you can add Rs 5,000 more this year in Reliance Equity Opportunities. We assume that it can deliver 18 per cent annually. In 2013, increase SIP in IDFC Premier Equity by Rs 5,000.

In 2014, enhance the SIP in Reliance Equity Opportunities by Rs 10,000. In another two years from thereon, that is by 2016, you should have added another Rs 15,000 to your SIPs. Invest them equally in ICICI Focussed Bluechip and Birla Sun Life Dividend Yield Plus. So over 2012-2016, you should be able to divert Rs 35,000 more towards your monthly investments.

Stop SIPs a year before your goal. Gradually, exit the funds and invest in short-term bank deposits.