Feb 15, 2012, 04.32 PM | Source: CNBC-TV18
Harshvardhan Roongta of Roongta Securities answered investor queries on CNBC-TV18 about best investment options with regard to personal finance. Check out his comments.
Harshvardhan Roongta (more)
Principal Financial Planner, | Capital Expertise: Mutual Funds
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: The 39 yr old caller has already made a couple of investments in the likes of FD, LIC policies, and voluntary provident fund. Now he is looking for mutual funds. Would you recommend a little more of equity for him for Rs 8,000 per month?
A: Absolutely. The query which was given is that he is looking at accumulating a corpus of about Rs 25 lakh in a period of 15 years for which he wants to make an investment of Rs 8,000 a month. Good for him that he has got time to his side where with an investment of Rs 8,000 a month he can easily achieve his target of Rs 25 lakhs, in fact he would be exceeding a target.
However, I want to take a step back for him and inform him that from a financial planning perspective, if I see his entire portfolio, he has got very little of life insurance policies and he is an earning member of his family. So if I break his Rs 8,000 into two parts, I would recommend to him that he invest about Rs 5,000 a month in mutual funds which will help him achieve his target of Rs 25 lakh, so thatís not an issue. This Rs 5,000 per month he could split into two funds which is one, an index funds which he could choose a Franklin India Index Fund - the BSE Sensex Plan; this basically just tracks the Sensex, so itís a benchmark that he doesnít need to track it very often, and the other is an HDFC Equity Fund in which he could invest another Rs 2,500.
With this, if you are assuming a return of about a 12% CAGR over a period of 15 years he will achieve his target of Rs 25 lakh. This leaves him with another surplus of Rs 3,000 a month which I would recommend that he consider buying a term insurance policy for himself. Heís got about Rs 5 lakh of insurance, thatís about it. So he needs two more products in his portfolio to complete his security part as well. He could take adequate term insurance policy based on his consultation with a financial planner, and also a mediclaim policy which is a hospitalization-reimbursement policy. He needs to add these two also. So within his perspective of Rs 8,000 he can complete his financial planning that way.
Q: The next caller is a housewife who is investing about Rs 3,000-4,000 per month in HDFC Prudence Fund and LIC. Will that suffice for 12-15 years to achieve Rs 35 lakh?
A: With an investment of Rs 4,000 per month, even if you assume a return of 14%, it is very difficult to achieve Rs 35 lakh as target. Your corpus can become up to Rs 15 lakh. If we add your HDFC Prudence Fund investment, still in 12 years, you can only get Rs 18-19 lakh. Nevertheless, what you could do is at least start the investment and as your investable surplus going by increases, then you can continue to make investments for this particular target that you desire to have after 12 years.
Again, for her (the caller), I will recommend since she is a novice to the stock market, she definitely should take an equity mutual fund because she has a 12-year time horizon, and within that sphere of equity mutual funds, I will again recommend to her also that she goes in for an index fund. The reason being index funds are very simple to understand, easy to track. You do not need to churn the portfolio often; you donít need to track the performance of the fund manager. Just simply let it be there. For her again, my advice would be Franklin India Index Fund - the BSE Sensex Plan, and simply leave it there for next 12 years.
Q: She has spoken about Rs 6,000 and 4,000 as annual premium that the family is paying in LIC. Her husband is the only earning member. You spoke in the previous occasion about the first priority for any family being insurance. Is there any specific advice you want to give in that direction?
A: Letís understand it from two perspectives, one is, if you are starting something new today naturally and itís a written rule now that you should not mix your investments and insurance into one product. Assuming that you are starting now yes, the advice would be that please do not mix the two, take a term insurance policy which is purely relating to protecting your family from financial stress.