If you wish to invest around Rs 2-3 lakh every year, term insurance can be a good idea if one goes for a high sum assured plan. However, for fulfilling a long term goal of children's education or while planning retirement, investment in equity can be a better bet, Pankaj Mathpal, Managing Director of Optima Money Managers tells CNBC-TV18.
Funds like DSP Blackrock Top 100 Equity Fund or HDFC Top 200 Fund, IDFC Premier Equity Fund or HDFC Midcap Opportunity Fund can significantly boost one's portfolio when planning for the long term, opines Mathpal.
When an investor is looking to maximize investments within a 5 year tenure, Mathpal believes SIP or STP can be of great help.
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: Can invest Rs 2-3 lakh per year. How should I allocate this money? I have three dependents and I am investing Rs 1-1.5 lakh in insurance every year.
A: He has two dependents and he has told what premium he is paying but, the sum assured from the insurance is more important. I will suggest that he have term insurance plan because that serves the purpose of insurance. You pay small premium for a high sum assured.
For child education, if he has a long term goal of say 10 years and definitely a long term goal for retirement, he should invest a larger portion of his investment in equity. I suggest, he invest through equity oriented mutual fund.
He should go for some good fund like DSP Blackrock Top 100 Equity Fund or HDFC Top 200 Fund. He can add midcap funds like IDFC Premier Equity Fund or HDFC Midcap Opportunity Fund to his portfolio.
Along with that one gold fund, maybe Reliance Gold Saving Fund or Kotak Gold Fund. Likewise, you can invest in some good mutual funds in equity segment as well as in gold funds. When he talks about retirement, he can also add Public Provident Fund (PPF) to his portfolio.
Q: If he has to have a target of Rs 1 crore, what would you expect him to invest per month or per year?
A: For Rs 1 crore in 10 years, he should invest around Rs 5 lakh per annum and that should be divided per month. So Rs 5 lakh should be divided by 12 months. But if he wants to start with Rs 3 lakh as he said, then he should increase his investment every year because if you assume 12% return from his portfolio, on a year on year basis, it comes to Rs 5 lakh per annum. If he’s starting with Rs 3 lakh, he should increase his investment every year.
Q: Can invest Rs 2 lakh per year. I wish to accumulate Rs 40 lakh in the next five years. How should I allocate the money?
A: Accumulating Rs 40 lakh in five years with Rs 2 lakh annual investment will not be possible, frankly speaking. What he should plan, if he wants to accumulate Rs 40 lakh to buy a house or to pay a down payment is he should accumulate. The balance amount can be planned through his loan.
He should invest Rs 2 lakh in a staggered manner. He can take help of SIP or STP. Every month he should invest this amount. If he wants to invest in STP, then he can put lump sum amount in a liquid fund. From there he can opt for SIP or STP.
He must also have some good funds in his portfolio. Considering his horizon of only 5 years, he can have some exposure to equity and as he has been investing in equity already, some bond funds and fixed deposits should be added to his portfolio. I can suggest some bond funds like SBI Dynamic Bond Fund or UTI Bond Fund.
Q: So, if Rs 40 lakh is the target in five years, you would require a minimum investment of Rs 6-7 lakh per year?