Best Investment Strategy

POSTED BY Bunker ON January 13, 2013 3:16 pm COMMENTS (9)

I am 38 yrs old and my eldest child is a daughter(US citizen) who is just 2 yrs old. I want to make some investment for my daughter’s education (plans are to educate her in US) as well as my retirement.

What are the best possible investment solutions to create the necessary education funds for my child, given the fact that I have only 17 yrs as term of investment and hardly 20 yrs of active salary earning? Since time is les, I need to accumulate and grow the investment so that it is sufficient for her education and my retirement.
I currently have my own PPF account which is not significantly loaded with funds(due to my own mistakes by not putting adequate money in PPF inspite of having it). I also have some 7 or 8 mutual funds comprising of equity, one balanced and one gold fund. What I need from the team here is a mix of good quality Balanced and Debt / Income funds for long term(3-7 yrs). I dont strive for 40% annual returns per year but do need some 12-16% returns per year consistently.
Please advice what is the best possible mix of investment strategy I should go for.

9 replies on this article “Best Investment Strategy”

  1. Sonali Suman says:

    Well, to start off with I would say that there are multiple investment opportunities available here and hence, you will not face any difficulty choosing the perfect mix of investment option for your requirements. You can invest in various schemes like fixed deposits, recurring deposits, properties, debt mutual funds in India. I will be unable to guide with the right investment plan but recommend you to do a good research on any investments you wish to take. Invest safe! http://www.dbs.com/in/personal/investments/debt/debt-mutual-fund.aspx

  2. Bunker Guide says:

    I am in India right now though I am still not a full resident. Within next 75 days I will be a resident.

  3. Dear Bunker, are you in India or USA for your job right now?

    Thanks

    Ashal

  4. a) What I now need is few names of good quality Debt instruments.Give some names of Debt: Income, Debt: Short Term funds which will safeguard the corpus as well as keep growing at 9-12% per year.

    For debt funds please go to value research online and choose 5-star debt funds. You should expect only single digit returns though.
    another option for you is to switch from pure equity to balanced funds and invest more in these down the line. This will increase debt component and it will automatically take care of rebalancing

    b)
    Should I open a fresh PPF account in daughter’s name as well given that she is 2 now? This will enable her to receive funds when she is 17-18, when we need those funds for her education?

    Yes you could. But contribute only a small amt now. Increase the contribution as the goal approaches. Remember it will mature after 15 financial years from date of opening

    c) I dont have any PF left after 14 yrs of employment. I need to choose one good Debt:Gilt fund and invest lum-sum as my PF amount.

    You are only 38. Assuming you will retire at 60 you still have a good many years to invest in equity. If you dont you run the great risk of not being independent in old age.
    You can use this

    http://freefincal.wordpress.com/retirement-corpus-guesstimator/

    to estimate how much corpus you need to save

    If you invest in debt funds for so long the tax will eat away the corpus. You need to maximize your investments in tax free instruments.
    At least as of now equity and PPF are good choices.
    A conservative investor is not one who avoids equity but one who has intelligent asset allocation to minimize volatility.

    Good luck.

    1. Bunker Guide says:

      Can someone explain me more on one point:
      If you invest in debt funds for so long the tax will eat away the corpus. You need to maximize your investments in tax free instruments.

      What is wrong in investing a large corpus in well performing Debt fund for a long time? How will the tax on the returns (say 9% per annum) will eat away all the corpus?

      1. For debt fund long term capital gain is taxed as follows: Without Indexation – 10% and with Indexation – 20%

        So using t=10% for tax and r=9% return the tax adjusted return is
        X= amt invested
        X(1+r(1-t))
        so effective return is 8.1%

        which is not bad at all. If tax free investments are not available then debt funds are next best choice

    2. Ramesh says:

      I do not agree with your ‘tax will eat away the corpus in debt funds’. That happens only if you realise the capital gains by selling and buying. If you will keep the money as it is, it will undergo compounded growth, which will include the tax part too. Even then the rate of return on debt funds is decent (but still below inflation).

      Maybe give some actual calculations.

  5. First you need to decide how much you need to invest. You can use the goal and retirement planners at

    http://freefincal.wordpress.com/

    to plan for your goals and optimize the amount you need to invest.
    .
    I think you have enough time for your daughters education. For your retirement don’t; worry about PPF corpus you still have 20 years to go. So you should not be invested 60-70% in equity.
    In the equity component 70% or so should be in large cap and balanced funds and rest in more risky small and mid-cap funds

    for example
    Franklin Indian Blue Chip is a good large cap fund
    Quantum long term equity is a good large and mid-cap fund
    IDFC premier equity is a good mid and small cap fund
    HDFC balanced or prudence are good balanced funds
    you have not mentioned the MFs you hold

    limit your exposure to gold to about 10% of your portfolio.

    Over a long period 12-14% returns is pretty realistic and achievable,

    If you could increase your monthly investments each year by about 10% it would be even better.

    As your goals approaches close (say 2 years away) pull your money from equity and shift them to debt instruments

    Contribute whatever you can into PPF after you take care of the above.

    1. Bunker Guide says:

      I do not do SIPs. I do ‘lum sum’ periodic buying(since May-2009) each time there is a drop in index (it is as good as SIP). I have not sold anything on any peaks, though I feel I should sell on peaks and move towards Debt funds(I dont know names). I hold HDFC Premier Multicap, DSPBR Top 100, DSPBR Small and Midcap, Birla Sunlife Dividend Yield Plus, Templeton India Equity Income, HDFC Prudence, ICICI Pru Focused Bluechip, SBI Gold. SBI Gold has 10% of my total corpus and I have no plans to increase the same.

      a)
      What I now need is few names of good quality Debt instruments.Give some names of Debt: Income, Debt: Short Term funds which will safeguard the corpus as well as keep growing at 9-12% per year.
      b)
      Should I open a fresh PPF account in daughter’s name as well given that she is 2 now? This will enable her to receive funds when she is 17-18, when we need those funds for her education?
      c)
      I dont have any PF left after 14 yrs of employment. I need to choose one good Debt:Gilt fund and invest lum-sum as my PF amount.

      I am a conservative investor, given the age I have reached.

      Thanks,

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