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Apr 13, 2012, 01.10 PM IST
Investing on a monthly basis at an early stage of life helps inculcate savings discipline, advises Radhika Gupta of Forefront Capital Management. By creating the habit of saving, time will enable you to reap the benefit of both compounding interest and long-term gains.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: An investor can invest Rs 20,000 per month. How should he allocate his money? His goal is Rs 20 lakh, time period is 7 years. He has current investments, Rs 5000 each in HDFC Top 200, Rs 5000 in HDFC Equity fund, Rs 2500 each in Reliance Growth fund and Birla Sun Life Mid Cap fund as well, Rs 3000 in an ICICI Fund and Rs 2000 in a Kotak Money back fund. He does not hold any insurance and is the only earning member with two dependents.
A: Given his existing investments and the new investments that he is planning and the time period being fairly long, he should be in a very good shape to accomplish his goal of Rs 20-25 lakh. His current portfolio is very equity heavy and he has got a five large cap funds.
He needs to now diversify the portfolio outside equity. Of Rs 20,000 that he is planning to invest, he should add Rs 5000-7000 in gold, and then he should add Rs 5000-7000 in more conservative instruments like debt. Since he has dependents as well, the balance should be invested in a term insurance component.
Q: A student can invest Rs 3000 per month. How should he allocate his money? He has insurance but his father looks after it. But isn't it a traditional mistake we all make to insure children, isn't it much wiser to insure only earning members?
A: It is. Children should take responsibility of insurance as it comes. But the step he is taking to start investing on a monthly basis is very good. It is very rare to see students do that because Rs 3000 will grow as his earning potential grows.
So it's a disciplined idea. I would suggest him to start by investing in a large cap equity fund; this is probably one of his first investments. So I would suggest Franklin Bluechip Equity Fund or HDFC Equity Fund for him.
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