To achieve a corpus of 5 lakhs or 25 lakhs with an investment of Rs. 5,000 is possible if one puts that money into equity funds which are large cap or diversified in nature, states A Balasubramaniam, CEO of Birla Sun Life.
Below is an edited transcript. Watch the accompanying video for more.
Q: By investing Rs 5,000 a month is it very ambitious to get Rs 5,00,000 in three years?
A: Definitely. I think even on simple computing every month investing Rs 5,000 and assuming a 10% interest he will get on that, it doesn’t add up to Rs 500,000 in a three year period. Essentially it means the goal what he is expecting to be generated out of this on three year is pretty large when compared to where he could put the money and how he can generate the return.
He has to have definitely longer term time horizons and also one should accept the fact that with the power of compounding more money can be made only in the equity over a long period of time. That comes with a bit of volatility. He has to probably look at as to how he can probably contribute little more than what he is currently doing given the fact taking into account that he has to of course make the payment towards insurance premiums and other household expenses. Keeping that in mind probably, he should look at how to allocate more into that. Second is how long he can actually extend that period.
Q: He is only 26. Can you give him some advice on what kind of equity funds?
A: I think as far as the equity is concerned he should prefer to put it into the diversified large cap focused equity funds, which essentially takes into account the broader market. Also essentially the underlying portfolio takes into account the multiple expectations, which will come in market play.
Q: Can you give some names of funds?
A: If I were to talk about my own funds such as Birla Frontline Equity, which is the large cap focused fund and has been delivering return in the last 5-10 years in excess of almost 18%. If he is looking at the real power of compounding which has to help him generate wealth considering the expectation he has got with respect to the money what he is investing then Birla Frontline Equity could be a better option.
Q: Investor can invest Rs 5000 per month. She is 29 years old. Her goal is Rs 25-30 lakh at the end of 11 years. No current investments and she is the only earning member in the family and she has two dependents. How should she allocate her money?
A: She has to look at investing into equity funds. That is only where in the 11 years period, the visibility of generating actually, the goal of Rs 25-30 lakh. Though Rs 25-30 lakh even on simple math could be a tough target to achieve. However, having specified clearly the period of investment, she has to take bet on the equity funds which is the large cap divestment focused funds such as in our case Birla Frontline equity, or Birla Dividend plus. Even a balance fund, which is Birla Sun Life 95, could also be a potential investment opportunity that she can look at it from long-term point of view.
Q: Would you recommend her splitting it into two funds or just one large cap or a diversified sufficient?
A: Some of the schemes from our own fund house such as Birla Frontline Equity is essentially focused on large cap. Birla Dividend yield plus as gone through the multiple rounds of market cycles from 2002 till today which is mix of midcap and the large cap names. Sun Life 95 over a period of time with a good mix between the debt and the equity which is 70% in equity and about 30% in debt have delivered after seeing multiple rounds of market volatility, had delivered better return sometimes even better than equity schemes. That sense if you look at it the money can be split into three schemes for her to get that long-term goal achieved.
READ MORE ON equity funds, Birla Dividend Plus, Birla Frontline Equity, A Balasubramaniam, Birla Sun Life
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