POSTED BY May 10, 2013 11:37 am COMMENTS (22)

ONI want to invest Rs 1 lac for each of my two nephews marriage which may be after 8 years and 15 years from now. What is the best way to invest this amount so I can gift them something great out of the return along with this investment. I want to spend all investment in their marriages. Please suggest best way to get maximum benefit out of this money with return.

Ashalji ur ans are simple and fantastic indeed. thanks.

Dear Mehul, you are investing 2L Rs. in one single shot into the Eq. MFs as discussed already. Now in next few years say after 3-4-5 years, whenever the fund value becomes 4L, it means your basic target for elder one has been achieved. Now on your part, all you need to do is redeem those 2L Rs. from the Eq. funds & invest the same into a debt fund for the basic capital protection. This may happen after 3Y or after 4,5,6 year from here onwards. In case, the total corpus remains below 4L Rs. say around 6.5Y time, still you should withdraw those 2L Rs. & keep it in debt fund. the remaining amount should remain in Eq. for younger one’s need.

Hope I’m able to clarify now.

Thanks

Ashal

atleast 2 lac

Dear Mehul, may I ask a question? From the 1L Rs. meant for elder one, how much amount you want to be in the value at the time of actual need? Say 1.5L or 2l or 3L? be realistic?

Thanks

Ashal

Good enough confusion, Anyways any advice about Tax saving FD and double the amount in particular years FD may be good option too??

Dear Mehul,

The Tax saving fixed deposit helps you save on tax for the year they are opened. But on maturity the interest income generated will be fully taxable. So if you invest Rs.10000 for 5 yrs @8.5%, you shall get tax benefit in the year you have opened the FD. On maturity, amount would be about Rs.15500 (let’s say) and you need to pay tax on Rs.5,500. End result is less benefit but the principal is secure. Same is with double your amount (though I don’t see any such scheme now a days).

Whereas, if you are investing in equities, you get the benefit of Long term capital gain tax and over a longer time horizon, most possibly much better returns than tax saving FD. Of course flip side is returns are not guaranteed.

Ashish

Is it the case even invested in the Ashalji suggested mutual funds as well??

“For a 8 yr duration there is about 7-10% probability of ‘loss of capital’ and only 70% probability of achieving your target based on 10% returns.

So do invest with caution.”

No fund is immune to losses. So the answer is yes. The study was done with sensex.

FI Blue chip is close to an index fund. So the answer is a double yes!

QLTE is a good conservative fund. However it is still relatively a new fund and by its portfolio content is historically more risky than a pure large cap fund.

For a 8 yr time frame it is not such a bad idea to invest in debt funds with equity exposure of only 30-40%. Even this requires active management.

Hybrid conservative mutual funds like Reliance MIP-G is adequate for such purposes. An expectation of pre-tax return of 8-9% should be okay.

Even a RD/FD is not such a terrible idea. Minimizing tax is important. Even more important is capital protection. It all depends on what you are comfortable with.

Nothing is good or bad.

A good idea of a Capital Protection scheme is:

1. 1.08 ^ 8 = 1.85 and 1/1.85=0.55

So, if 55% of 1 lakh is put into a pure debt fund and over 8 years and it gives you 8% CAGR, your total capital is protected. Keep the rest of the money in a large-mid cap fund eg. Franklin Prima Plus / Flexi Cap, HDFC Top 200 / HDFC Equity, QLTE.

2. Similar calculation for 15 years means 32% in debt fund and rest in an equity fund.

Total of 2 lakhs:

1. 87k in one long term debt fund.

2. 113k in one equity fund.

3. At 8 years, remove accordingly the percentages, and rest at 15 years.

And this is an auto-pilot mode – No need to intervene at all.

Dear Ashal,

Thanks for your view. Your reply give me some clarity and help me to learn something today … 🙂

@Friends: Apologies if any statement in my replies hurts you …

Have a good day …

Once again thanks Ashal ….

Regards

Nagarajan Santhan

Nagarajan,

If the investment duration is 15 year it makes no difference (historically) whether you invest via lumpsum or STP

See:

http://freefincal.wordpress.com/2013/04/21/comprehensive-mutual-fund-investment-mode-comparator/

Mehul

For a 8 yr duration there is about 7-10% probability of ‘loss of capital’ and only 70% probability of achieving your target based on 10% returns.

So do invest with caution.

Dear Nagarajan, let me share my view – the starting point is known – Invest 2L Rs. Now if dear Mehul spreads the 2L Rs. to be invested systematically in next 12-24 months, the remaining time frame ‘ll be less for Eq. investments at least for short term goal.

That’s why I asked to invest in lump sum.

Thanks

Ashal

Dear Ashish, thanks a lot for replying & clarifying on my part.

Dear Mehul, You are investing 2L Rs. as of now. Say after 6Y, the combined fund value is 5L Rs., you should switch 50% of this amount which is 2.5L Rs. to debt fund to lock in the gains till this point & to use the same at the time of actual need which is 2Y away from this switching point. Same ‘ll be the case for 13Y switching.

Thanks

Ashal

Dear Ashal & Ashish

I agree with your part of FD due to taxation.

But I am not sure why you suggest to put lump sum instead of SIP. As per my view, putting STP instead of lump sum is better in equity markets due to rupees-cost average.

Can you throw some lights regarding this ?

Thanks

Nagarajan Santhan

@ Nagarajan

What exactly is Rupee Cost Averaging?

And do you think, the markets will Always go down when you will start your SIP/STP instead of going up? While obviously you are betting that in the longer run, markets will go up!! Think and then tell.

@ Ramesh

Thanks for your reply.

My point is here, instead of putting lump sum in equity, its better to put it in systematic way.

Rupee-cost averaging – (hope all knew) you will invest in systematic way, you will average your units in terms of buying units in market up & down cycle.

Lump sum investment is really work better than systematic investment when u entered in right time (i.e market down) But we know well, it is not possible.

I just want to know from Ashal (because I know Ashal’s contribution this forum), is there any reason for recommending Lump sum instead of SIP.

Thanks

Nagarajan Santhan

Ah, so instead of thinking about a point on its merit, who says it is much more important. Great. Enjoy.

And is that an Argument from authority OR argument from popularity. 😉

Dear Nagarajan,

Would like to ask you here what should be the SIP amount and Why?

The amount available is 1lakh for each of the fund. Should one do an SIP of 1000 for 100 months, 2000 for 50 months or 5000 for 20 months or 10000 for 10 months?

Ashish

Dear Mehul,

Since you want to invest 1L each in lumpsum for 8 years and 15 years, you can do the lumpsum investment right now, rather than SIP way.

Also, a dear Ashal has suggested move 50% of amount (generated in 6 years) from equity to Debt fund and let the balance 50% continue in equity till 13 years. Move that whole amount to debt after 13yrs.

The reason for moving to debt, is to secure the return and principal accumulated till the corresponding time period ad safegaurd it.

Ashish

Dear Mehul, Please invest 1L Rs. each into 2 MFs.

1. Franklin India Bluechip fund direct plan growth option

2. Quantum Long Term Eq. Fund growth option

I’m not recommending FD for the fact that taxation is not favorable for you on FD income. At the end of 6Y or before that, you may shift 50% amount to a debt fund. At the actual need in 8th year, the debt fund should be redeemed & gift the elder one. Later on in 2026, you may switch to debt fund for younger one & redeem in 2028 & gift.

Thanks

Ashal

Thank you Ashalji,

well, should I go SIP or lump sum in both said MFs.

1. Franklin India Blue-chip fund direct plan growth option

2. Quantum Long Term Eq. Fund growth option

and what does it mean “…you may shift 50% amount to a debt fund.” what specific reason??

Hi Mehul Sharma

8 years – Hence this time frame is short, better to invest in FD (find high interest rates deposits) or invest balanced funds through STP mode like HDFC Balanced.

15 Years – Invest well diversified funds through STP mode. Don;t put lump sum investment in equity funds.

Regards

Nagarajan Santhan