May 24, 2012 10:23 AM IST | Source: CNBC-TV18

First step in investing is setting long-term goals: Roogta

The chief executive of Harsh Roongta says that the first step of financial planning is setting long-term goals.

The chief executive of Harsh Roongta says that the first step of financial planning is setting long-term goals.

In an interview to CNBC-TV18, Roongta says setting up long-term goals helps plan investments in a better manner. He adds that the best way to calculate the amount is to see how much it would cost today and then adjust it for inflation.

For investors looking to invest Rs 15,000 per month, Roongta advices sticking to three-four funds only. “One largecap, two diversified or two largecaps, one diversified and a small portion to midcap,” he said.

Below is an edited transcript if his interview. Also watch the accompanying video.

Investor: I have a policy with Max New York Life. It’s a ULIP policy and it’s a 20 year plan. I am investing Rs 50,000 a month. The point value has come to Rs 170,000 and I have invested Rs 200,000, so should I continue with this policy or is there any other appropriate policy which I should invest? My second question is, I am investing Rs 15,000 a month in SIPs, namely UTI Opportunities Fund, UTI dividend Yield Fund. Quantum Long Term Equity Fund, DSP Blackrock Top 100 Equity Fund and Birla Sun Life Dividend Yield Plus. I am investing Rs 15,000 equally in all these plans. My target is around Rs 3 crore in 10-12 years and I have got a surplus of Rs 15,000. Where I can invest in other mutual funds?

A: Since you are the only earning member, life insurance is extremely important for you. Having said that, mixing life insurance and investments is a pretty bad idea, as you are discovering. As far as your life insurance needs are concerned, stick to pure term insurance. Go online, buy term insurance for typically 10-12 times your annual income less any realisable assets that you have and add back any liability, that’s the amount of life insurance you should have. Take it online, it will be available extremely cheap.

As far as Max New York Life policy is concerned, a lot of charges you have already paid. You have not indicated which fund you have invested in, it needs to be reviewed. In most likelihood it may not make sense for you to continue with the policy and you should surrender it and probably shift it to another avenue.

The key point is whenever you invest in equity, which is what I suspect you would have done even with Max New York Life, and if you are investing in the other funds that you have from time to time the fund values will go up or down. I think it’s the long term that you need to look at and in the long term if you had been getting good returns that is what I think you should be concerned with.

Of the five funds that you named, I think the UTI Opportunities Fund is pretty good. You may need to review the other funds that you have. For your fresh funds I would recommend that you look at HDFC Top 200 maybe. You don’t seem to have a midcap there at all, so IDFC Premier Equity. Also, look at Franklin Bluechip. But I think you need to consolidate so that your total of Rs 30,000 investment that you have is not spread over more than four schemes and that should have a mix of large cap, diversified as well as a small allocation to midcap as well.

Investor: I have been investing in Rs 11,000 Reliance Regular Savings, I have been investing in Franklin India Tax Shield and I have been investing in SBI M Midcap Fund. I can invest 15,000 more every month for the next 15-20 years?

A: I think you have got your basics in order; you have got your health insurance in order. As far as life is concerned, depending on the income that you have, you need to make sure that you have adequate life insurance since other people are dependent on you. Please take online term insurance policies because they are the cheapest.

Among the funds, if three years have run out on the tax shield funds you can then look at shifting it to the regular funds. Reliance Regular Savings fund is a decent fund. For your fresh investments you can look at HDFC Top 200, you can look at Franklin Blue Chip, ICICI Prudential Discovery. If you have roughly Rs 30,000 to invest I would not spread it over more than four funds. One largecap, two diversified or two largecaps, one diversified and a small portion to midcap. That’s what I would do.

I am assuming you already have some debt investments and hence I am not recommending any debt. Otherwise, a small 10% portion to debt maybe a 5% portion to debt and a 5% portion to a regular gold fund. That could be your basic criteria or investment to meet your need.

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