Expert advice

Sep 02, 2013,15.47 IST

Consider PPF when investing for long-term: Harsh Roongta

In an interview to CNBC-TV18, Harsh Roongta of apnapaisa.com shared his insights on long-term investment.

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Below is the verbatim transcript of Roongta's interview with CNBC-TV18.
 
Caller Q: How much should I invest to collect a corpus of Rs 10 lakh after ten years?

A: Even before deciding how much and where, the key thing that you should look at is how have you arrived at Rs 10 lakh and how have you arrived at ten years. Is there a specific reason that ten years is fixed because if you do not fix the period well and it is not matching with what you want, your recommendations can be wrong.

The amount itself when people frequently fix it, they completely forget about inflation. Rs 10 lakh, ten years from now is equivalent to roughly Rs 4.5 lakh today. If you are talking of Rs 10 lakh of today’s money then that is roughly equal to about Rs 22 lakh after ten years. So, you need to decide what is it that you want Rs 4.5 lakh today or Rs 10 lakh today. That is something you need to decide.

If this is properly fixed, if it is Rs 10 lakh after ten years is what you are looking at then you could take a risk since the investment is for ten years. You would need about Rs 4,200 if you invest 90 percent in a largecap equity fund and 10 percent in public provident fund (PPF), if you already have a five year old PPF -- if you need the money after ten years you will need a five year old PPF so that you can withdraw the money after ten years. But PPF is a lovely debt instrument and 90 percent of the money. So, you put in roughly about Rs 3,700 or Rs 3,800 in largecap fund and about Rs 400 you can put in PPF every month. If it is Rs 10 lakh today’s money then that amount will actually go up about Rs 9,200. That is the real gap and you will need to put in close to about Rs 8,200 in a largecap fund and about Rs 1,000 in PPF. So, that depends on the goal that you have in mind.

Caller Q: Has invested in Reliance Equity Opportunity Fund in systematic investment plan (SIP). Should I quit or stay?

A: Reliance Equity Opportunity Fund is a mid and smallcap fund. As the name suggests, it invests in midcap and smallcap companies so the returns are volatile. In terms of absolute returns it has not done too well. If you have done SIP over the last three-four years but it has beaten its index and since you are investing systematically, I suggest that you continue with it if the period left for your goal is while away. I suggest you continue with it. It is a good fund that has beaten its benchmark. The returns are going to be volatile because it invests in mid and smallcap fund. In that category it is a good fund, you should continue.

I would advise to look at how much money you can put in mid and smallcap. That is the bigger decision than whether you should continue with Reliance Equity Opportunity Fund or not because your investment should be divided between debt, equity maybe a bit of gold and within equity a larger portion to largecap and a smaller portion to smallcap. So, that is a bigger exercise but meanwhile you can definitely continue in Reliance equity opportunity if the period left is much longer.

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