Check out investment options for long term view

In an interview to CNBC-TV18 Hemant Rustagi of Wiseinvest Advisors recommends investing in equities from a longer term prespective. One can look at mutual fund schemes like ICICI Focus Fund which is purely largecap fund, HDFC Equity Fund or a Reliance Equity Opportunities Fund.

On the debt side, fixed maturity plan is a good option for two years time frame.

Also Read: Should you remain invested in mutual funds?

Below is the verbatim transcript of Hemant Rustagi’s interview on CNBC-TV18

Q: Should I invest in real estate or fixed deposits? Where does one put the money right now?

A: Before making any investment decision, it is necessary to look at certain factors. One, you need to look at what is your time horizon, a period for which you want to remain invested.

Two, look at your existing portfolio mix, how much of your money is already invested in equity, gold or real estate.

Third, you need to look at what your investment goals are. For example, if the objective is to invest for longer-term like child education, marriage or retirement planning, primarily the focus has to be on an asset class like equity.

There is also space for an investment option like public provident fund (PPF) and around 10-15 percent in gold but the portfolio then has to be dominated by equity there. This is because you have a longer-term horizon even though equity tends to be volatile and that is the kind of volatility we have seen today. But for someone who is investing as a lump sum, I am not saying that you cannot invest lump sum but it is also important to invest on a regular basis. Equity requires a combination of these two.

So for a longer-term, you can look at equities. Some of the funds that you can look there are ICICI Focus Fund which is purely largecap fund, HDFC Equity Fund or a Reliance Equity Opportunities Fund, some part of it can go into debt, PPF and also in gold.

If the time horizon is couple of years, in the current scenario, you need to look at investment options that have the potential to give you higher returns than what you can get from traditional options like fixed deposits or recurring deposits and also the returns have to be tax efficient.

There are few options available from mutual fund. Currently, you have the fixed maturity plans (FMPs) that are akin to fixed deposits considering that the 10-year G-Sec yield is somewhere around 8.70 percent, it is a good time to lock-in your money at higher yield. So FMPs are available for six months, three months, one year, two years. My recommendation would be to go for one-year as well as two-year FMPs because these are close-ended fund.

If you do not want to lock-in your money then there are options available in the open-ended space as well. There are short-term funds and income funds that follow accrual strategy. Some of the funds that you can consider in this space are Birla Sun Life Short Term Opportunities Fund, Reliance Regular Savings Fund and also UTI Short Term Income Fund.

In case of real estate, it is a good option but you need to look at the money is available with you. With Rs 4-5 lakh, I am afraid you will not have too many options of investing in this space.

Also, real estate tends to be long-term investment. So the key factor is your time horizon as to whether you have that much time or not.

In real estate even though the potential is very high, you need to compromise with the liquidity. So if you are investing for a couple of years, I don’t think real estate is the right option. So, you need to look at your time horizon, what is your existing portfolio mix that you have and what kind of investment goals you want to achieve.

Q: If anyone has a long-term time horizon then the common wisdom is to invest in equity markets but right now, you also have an option to invest in tax-free bonds, like Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) and they are giving a pretty good yield, so between these two options for the long-term, where would you recommend people to invest their money?

A: Tax free bonds are definitely a good option on the debt space that is why I mentioned PPF, but the problem in PPF is that you cannot invest more than Rs 1 lakh. Therefore, on the debt side you can look at tax free bonds but if you want to invest for 15 years and if these bonds give you around 8.5 percent, equity has the potential to give you much higher return over a 15 year period. So for a long-term investor, the portfolio still has to be dominated by equities and there are some portions that can go into debt option as well as in gold.

Q: Can you suggest a suitable medical insurance plan?

A: It is always advisable to supplement your health insurance plan with the critical illness plan but unfortunately there are very limited options available for senior citizens. So although there is a plan like Varistha Mediclaim Policy from National Insurance that provides critical illness cover up to an amount of Rs 2 lakh, there aren’t many options in that space. They said they have a family floater plan and they should see what all is covered in that plan, what kind of sub-limits are there.

Also, considering their age collective sum insured of Rs 5 may be sufficient and so they need to look at enhancing that but in the critical illness space, unfortunately there are not many options available for them.