While planning for retirement, it is very important to note the time of retirement, believes Lovaii Navlakhi, MD & Chief Financial Planner of International Money Matters. He advises investors against looking at retiring very early. Taking some time will allow the money earn its returns, Navlakhi tells investors in an interview to CNBC-TV18.
Although, equities and fixed income products can be good investment tools, Navlakhi feels that gold is an excellent investment choice in uncertain times. Hence, investors can allocate a certain portion of their investment in the golden metal, ideally 5-7% of one's total net worth.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.
Q: Investors wants to invest Rs 2 lakh lump sum every year in mutual fund or ULIP. His goal is Rs 10 crore. How should he allocate the money?
A: First of all, I think when he is planning for retirement, an important thing to note is the time of his retirement. He mentioned that he wants to accumulate these funds in the next 10 years. If he is going to invest Rs 2 lakh per annum and he already has about Rs 2 lakh of investments currently, we should assume a return on the portfolio of about 10-12% typically with possibly about 60% currently in equities and the balance in fixed income type of products.
With that amount, he would probably be short of reaching his goal. What he requires to do is if he can add something like Rs 4-5 lakh per annum, then in 10 years he will meet the goal. The other option obviously for him is to look at the retirement goal maybe 12-13 years later instead of 10 years.
In that case, he will be able to achieve his goal. So that's the first important thing for retirement planning, the time period. Give a reasonable time period and don't look at retiring very, very early. Then you have more time for the money to earn its returns.
Q: You also have some fund names that you are suggesting?
A: If he is looking at equity funds, I will just name one fund each from the large cap, mid-cap and multi-cap category. From the large cap it could be Franklin India Bluechip, in the midcap category HDFC Midcap Opportunities and a multi-cap fund like ICICI Dynamic Plan. If he needs fixed income, then ICICI Regular Savings or a Templeton India Short-term Plan is what I would suggest.
Q: Investor can invest Rs 50,000 lump sum. He wants to invest in gold. How should he allocate the money?
A: Gold is a very good investment in uncertain times. If we expect that there will be uncertainty in the markets, let's say in Europe there are problems, in India there are problems and we therefore, will see gold prices continuing to go up because people look at gold as a safe haven.
My real point is that we have had a very strong rally in the last three to four years in gold because of the uncertainties. It's not that the uncertainties are really over. But, I think a very important factor to keep in mind is that the rupee is probably in a weak position today. It could strengthen.
The impact or the benefit that gold would give for international investors may not be the same that you would get with the Indian rupee. My advice would be that he should definitely have some portion of his total assets in gold.
But, if he has Rs 50,000 to invest, I wouldn't recommend him to put all the money there. Maybe, he can start with Rs 15,000 or so. Out of this money, because he has zero gold today, he can invest in gold and the rest can be invested at the age of 62. He probably needs to have fixed income investments, if he doesn't already have them.
Q: It's not very common for investors to go on looking at certain times and uncertain times. Personal finance guys just put their money away. The better part of the day is spent earning your living. So as a rule, how much money should one put at all in gold?
A: Typically we look at gold investment at between 5-7% of one's total net worth. When things are uncertain, then you probably can enhance that investment. That is, you have money but you feel that it's uncertain to put money in equities today and therefore, maybe you can add another 5% to that gold kitty.
When you see a very strong rally, it is good to take out some profits, not just stick to it saying gold is always something that goes up because people have short-term memory, they have the last four years to go back to. But if they actually went back to the last 30 years, they will see that gold has really not given great returns, in fact slightly below inflation.