Investing in equity funds will help you stay above inflation. Lovaii Navlakhi of International Money Matters feels that in the case of saving for retirement, apart from large cap funds, it is advisable to invest in fixed income instruments too. Multi-cap equity funds are good options for an investor with a long time horizon. It is especially helpful when the amount being invested is less than Rs 5000.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Investors can invest Rs 50 lakh in lump sum. What is the advice that you would give him?
A: Since you are retired, I think the first worry or the risk that I need to protect is that my money should not run out during my lifetime. So I will look at a situation that you need regular inflow for the next 25-30 years from now and the other factor which is variable is the rate of inflation. Assuming that you will get 1-3% over inflation and if you park about 40% into equity funds today and then over a period of time bring down that equity funds to say 20% over the next 15-20 years, then you should be able to get that 3% over inflation. In that way, you get about Rs 23,000 per month from these funds.
So the idea is to look at putting may be up to 40% in equity funds, that to not lump sum, in a staggered manner over the next six months or so. There is a concept known as weekly systematic transfer plan so you could put monies through in equity funds. Because you are retired my focus would be more on the large cap diversified equity funds rather than the midcap funds. So you could pick a few large cap good equity funds like DSP Blackrock Top 100 or HDFC Top 200 and park your money. The rest of the money needs to go into fixed income instruments. So if you already have bank FDs and that is some portion, but bank FDs are taxable so go only up to the extent that is within the tax limit and then look at maybe fixed income mutual funds, the debt mutual funds, short-term as well as long-term.
Q: Investor can invest Rs 2,000 per month. He has two children and he is ready to put in Rs 1,000 each per child, so that is Rs 24,000 a year.
A: So the Rs 1,000 each since again he has mentioned that he has a long time horizon and because it is for child education, then I could put some money into the balanced or multi-cap equity funds which have some portion in large cap and some in midcap funds. So maybe a DSP Blackrock equity fund is a good bet to put money in. If he is going to increase his amount later on, then he can add some large cap funds or some midcap funds as well to the portfolio.
Q: What are the specific funds you are recommending?
A: See since he is talking only about Rs 1,000 per month for the children and normally parents like to invest in the same funds for both the kids. They don