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Jun 04, 2012, 07.43 PM IST | Source: CNBC-TV18

SIP in equity funds best for building retirement kitty

Systematic investment plan in equity funds is the right strategy when one wishes to invest for a longer period of time, advises Hemant Rustagi, CEO, Wiseinvest Advisors. “When you invest for 30 years, you need to focus on an asset class, which has a potential to beat inflation which is where I think equity definitely has a role,” he said.

Systematic investment plan in equity funds is the right strategy when one wishes to invest for a longer period of time, advises Hemant Rustagi, CEO, Wiseinvest Advisors. "When you invest for 30 years, you need to focus on an asset class, which has a potential to beat inflation which is where I think equity definitely has a role," he said.

If an investor is a little risk averse, he can take a call on investing in equity. Investing systematically every month tides away the volatility over a longer period.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest Rs 15000 per month for the next 15 years. How should he allocate the money?

A: The important thing here is his time horizon. I believe the best strategy for someone who wants to accumulate a corpus over a period of time through smaller contribution is to invest through systematic investment plan in mutual funds. Since the time horizon is 15 years, he can look at broad diversified equity funds.

He already has some of the funds in the portfolio but I would recommend a few changes here. I think he has Reliance Equity and Reliance Growth, my recommendation is that he should look at Reliance Equity Opportunity. Another change is, in place of Birla Growth Fund, he can look at ICICI Focused Bluechip, which is a large cap fund.

I think these two changes will create the right balance in his portfolio and he should be able to achieve a corpus of around Rs 80 lakh. If I assume a return of around 12% over this period, I think he should be able to achieve that.

Q: An investor can invest about Rs 15,000 a month. How can I allocate the money? My goal is about Rs 4 crore in 30 years and I have some current investments and a couple of mutual funds HDFC Midcap Fund and the ICICI Focused Bluechip Fund. I have an insurance of Rs 50 lakh in HDFC term plan insurance.

A: Here again, the time horizon is around 30 years and the objective is to build a corpus over a period of time. Systematic investment plan in equity funds will be the right strategy. When you invest for 30 years, you need to focus on an asset class which has a potential to beat inflation. This is where I think equity definitely has a role.

My recommendation for him would be that even if he is a little risk averse, he can take a call on investing in equity given a 30 year time horizon. The fact that he will be investing systematically every month, the volatility over a longer period is automatically taken care of.

I think his current investments are in two funds - HDFC Midcap Opportunity and ICICI Focused. ICICI Focused Bluechip, a quality large cap fund, can be continued. Rs 10,000 being invested in HDFC Midcap Opportunity which is a leader in its own category is not always about investing in the top performing funds, it is also about looking at which funds are suitable for you and what kind of risk profile you have.

In this case, almost two third of the money is going into midcap fund, which is not the right strategy for someone who is looking to begin investing. Yes, midcap fund has a potential to do well over a longer period. But it's also a fact that they tend to be more volatile compared to well diversified equity funds.

My recommendation is that he should make one change in this. He can continue to invest in HDFC Midcap Opportunity maybe, around Rs 5000 but Rs 5000 should be invested in well diversified multi-cap fund. He can either look at Canara Robeco Equity Diversified Fund or HDFC Equity Fund.

With this, he will have three funds in the portfolio - one multi-cap, one midcap and one pure large cap fund. That will create the right balance. If he continues to invest for 30 years assuming a return of around 12%, he should be able to build a corpus of around Rs 4.57 crore. The key, ofcourse, is that he should continue the process irrespective of the market condition.

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