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POSTED BY ON June 4, 2012 7:34 pm COMMENTS (23)
Hello,
I am Lakshmipathy G. I am new to mutual Funds.
I have read some of your links from jagoinvestor and my other favourite tflguide.com, It gave most insights for financial planning.
The people whom i talked personally could not even give Half information of which you have shared.
It was very helpful.
Now i want to start investing in Mutual Funds. Now I need your suggestions to make it a reality.
1) Goal 1:
Investment Objective : Retire in 10 years.(Achieve Freedom from working for money).
SIP Amount : 20,000 Rs per month.
Risk Appetite: 30-40% loss should be fine.
(20,000 * 12 * 10 = 24 Lakhs -Total Investment. Expecting in case of loss atleast 15 Lakhs after 10years).
Age :31 Years
Marriage: Planning to get married this year.
Dependants: Parents Depend upon me.
Profession : Software Engineer by profession, Musician by hobby(hoping to convert into a profession after 10 years).
Monthly Expenses: 30,000 per month on a average.
Expecting Returns : 12- 15%
Expecting Amount :(50 -60 Lakhs)
Tax Savers: Not planning (Is this correct?)
Gold Funds : Less idea So not planning (Is this correct?)
Index Funds : Less idea So not planning (Is this correct?)
Equity with Growth/Dividend Option : Planning for Growth Option(As i heard Dividend calculation will be little complex)
Plans : 70% Equity and 30% Debt.
Equity: 70%
Large Cap Fund : 15% (3000 Rs)
Large & Mid Cap Funds :15% (3000 Rs)
Multi Cap Fund : 20% (4000 Rs)
Mid Cap Fund : 20% (4000 Rs)
Debt : 30% (Considering Balanced Fund as a Debt Fund)
Balanced Fund : 30% (6000 Rs)
To kick start my self, i thought of doing something in HDFC.
I saw four funds like
HDFC Equity .(CAGR 23.54%)
HDFC Balanced.(CAGR 17.45%)
HDFC Top 200.(CAGR 23.58%)
HDFC Prudence.(CAGR 21.79%)
As i have read from your articles, selecting a same fund house for multiple funds is not advisable.
I am not sure whether to go for a Equity Or Balanced(HDFC Balanced or HDFC prudence)?
If Equity then HDFC(HDFC Equity or HDFC 200) – Large Cap Fund?
If Balanced then (HDFC Balanced or HDFC prudence) – Balanced Fund?
For Large Cap Fund, I am thinking of ICICI Prudential Focused Bluechip Equity OR DSP BlackRock Top 100 Please Advice?
For Large & Mid Cap Funds, I am thinking of UTI Opportunities or HDFC Top 200?
For Multi Cap Funds, I am thinking of HDFC Equity Or Reliance Equity Opportunities Fund – Retail Plan -Growth?
For Mid Cap Funds,I am thinking of IDFC Premier Equity Plan A Or Birla Sun Life MNC Fund (G)?
For Balanced Funds HDFC Balanced or HDFC prudence – Balanced Fund?
Need your help on this?
2) Goal 2:
Investment Objective : Child Marriage or Child Education after 20 Years.
SIP Amount : 3,000 per month.
Risk Appetite: 0% loss
Age:31 Years
Expecting Returns : 8.6%
Expecting Amount :20 Lakhs
Plan : PPF for 20 Years.
So not considering PPF For the first Goal.
Please help to make my dream reality.
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Thank you Ashal and Ramesh. Ramesh, i will sure do my own self learning. I am already considering your advice in two or other areas. like May i should increase my number of years from 10 to 15 years, Or stop SIP by 10 years and move slowly 10% to Debt funds and have 50- 50% on Equity and debt by 15 years. And also may be will use the PPF for some other purpose as well. And also trying to reduce my funds from 5 to 3 equity funds, I am considering these options 🙂 also. I am trying to push myself by investing more initially and then later reduce. Hoping will achieve what i would like to achieve. Will Surely keep Posting you and Ashal after 10 or 15 Years also. 🙂
Thank you Ashal. I will consider this. I am still struggling to put everything to put everything proper as financial planning. Can you please suggest some Paid Professional Financial Planners who could help on this. I have talked with two of the so called Financial planners. one is asking me to do insurance + Investment endowement policy and the other is talking more about the insurance policies. I am not quite convinced with both. I am based out of bangalore. Please suggest.
Ashal himself does it.
Other option is Manish / Nandish.
But please keep learning on your own, since that is irreplaceable.
Ramesh
Dear Lakshmipathy, if you are asking for my own paid services, please check my profile to get my mail ID. As per forum policies, I can’t post my mail ID directly.
Alternatively you may go with dear Manish & dear Nandish.
Choice is your’s.
Thanks
Ashal
Hello Ramesh/Ashal/Manish,
One good news from my side, With your guys help, I have started investing. I did some anaylsis and have submitted the forms to Quantum Long term Equity (6000 Rs). Thanks a lot. Can you guys please suggest any other area or any type of mutual fund or any other list of mutual funds where i can look upon? i would like to start investing on atleast one more fund with in 2 months for my goal. Please suggest.
Dear Lakshmipathy, If you are so much interested to add one more fund, my choice ‘ll be a large cap Franklin India Bluechip. Personally I w’d like to continue in Quantum LTE with increased SIP amount.
thanks
Ashal
Dear Laxmipathy,
I am also new to MF investments and we both are sailing on same boat.
Can you explain the factors or features which made you to choose Quantum Long Term Equity SIP fund plan so that I too can plan for it.
Also let me know if you come across any agent to enroll for the fund.
Thanks,
Durga
Quantum Long Term Equity –
1.As per my understanding it performed well at the tough times (In the market crash of 2008).
2. Though it is a small Asset Management Company(Managing less than 100 Crores), It is performing well for the last 3 years above the benchmark.
3. Quantum Mutual Fund goes direct-to-investor approach.
4. I heard from some link If a AMC follows good process then it will
be better. I saw Quantum, HDFC, in the list.
(http://localhost/jagoforum2/mf-advice/3168/).Comment from Jagadees may help here.
5. Our Investor Words in this forum also.
I realize every fund has its own advantages and disadvantages. I saw some disadvantages i missed the link some way.
i am hoping it will perform well in the years to come also. Their exit Load is very high it will not be suitable for a short term investor. If you are planning to withdraw within a year it may turn out to be bad.
As far as agent goes, you will not need an agent to enroll the fund.
you can check this link for more information.
http://www.quantumamc.com/FAQ/Quantum_Long_term_equity_fund_faq.aspx
I provided information of QMC from this link.
http://www.investment-mantra.in/2011/quantum-long-term-equity-fund-p
ersistence-is-the-key/
Hope it helps.
Dear Durga, I’m using fundsindia for my investment in MFs. No transaction charge is there when you invest through fundsindia in any of the MF of your choice.
Disclosure – QLTEF is in my personal portfolio.
thanks
Ashal
Thanks Lakshmipathy and Ashal for your valueble inputs and guidance.
Thank you so much for the help and the information. Will keep u posted after i did my first fund. Thanks a lot.
Hello Ramesh,
Do you have any links for a Portfolio statement. This is something new for me. Can you share any links. or any sample. Would love to learn.
I got some of the links, I think you were trying to say me to do something like this.
http://localhost/jagoforum2/wp-content/uploads/2012/04/funds-write-up-1.pdf
http://localhost/jagoforum2/wp-content/uploads/2012/04/funds-write-up2.pdf
Those are just analyses of some of the funds, and not portfolio statements or reco.
Why that fund and stuff like that.
Check this.
http://www.bogleheads.org/wiki/Investment_Policy_Statement
A small sample: http://socialize.morningstar.com/NewSocialize/asp/FullConv.asp?forumId=F100000015&convId=183427
A larger sample: http://news.morningstar.com/articlenet/article.aspx?id=79486&_QSBPA=Y
Ramesh
Hello Ramesh,
Thanks for the suggestion of funds. I will check on these funds. I will go ahead with 1 fund in this one. One more question, how much do you think would be a good amount to start with? I am thinking of around 6000 Rs.
Start with any amount which is comfortable to you. Whether it is 1k or 40k, just do it in one fund. Add others, if you really feel the need, after some more thought-process.
Hello Ramesh,
Thank you so much for your time in writing this big mail for me. It surely helped.
“Life is not an excel sheet. Be flexible and think with an open mind.” Quite True for me.
You were exact in this one “Real estate is a very illiquid asset, which combined with non-regulation and other issues, is not at all recommended for you.” My thinking is same here.
This is something i overlooked. Just went mere by calculation for 10 Years.
“Equities can give positive real return. The more the duration, the more the chances of a real return. However, over some 10-20 year periods, the real returns of equities may not be able to be positive. We do not and cannot predict which 10-20 year period will behave like that.”
I need to look little more seriously on the basic principles which you have written.
Child Marriage and Child Education. I knew i am little pessimistic here. Due to some past experiences, i like to be pessimistic here.
“Having 5 funds is statistically not better than 2 funds”. The idea behind the splitting to 5 funds is my little conservative nature to financial things. I am hoping even if mid cap or multi cap gives more loss, i could compensate to some extend with large cap and balanced and large and multi Cap Fund.
Still i am in the process of learning in this time i would like to start it and not delay more on my choices which increases my period further and makes it impossible.
You can start with some conservative funds with very decent management teams – Quantum Long Term Equity / DSP Equity / Franklin PrimaPlus / Templeton India Equity Income or even HDFC Equity. Get anyone 1 (and my suggested order of preference is that).
With 5 funds of similar nature, you are not diversifying Actually. If you have the inclination, then go ahead and check the holdings and also the turnovers to see how many stocks you actually hold with 5 funds vs 2 funds.
And meanwhile you can set/understand things for yourself. There is no shortcut / alternative for Your Own Learning.
Hello Ashal Jauhari,
Thanks for asking this one,I understand your concern behind this question. I might need my monthly expenses to be 40,000 Rs by 45 or 50 Yrs. 50,000 to 60,000 by 60 Yrs and by 70,000 -80,000 Rs by 75 or 80 Years. The idea is, i half heartedly like my current profession and my other half heart wants me to try some other profession. I am learning music for the past 5 years. Hoping after 10 Years i will be able to make my second job out of it. So i need to trade off between my current profession and my second profession and put an end date before it gets too late for me to try anything new. I am not sure how much my second profession could get money, even if it gets it can not pay me like the one which i am doing. I can take the risk but i would like to make sure my family does not get much impacted by my decision. Please let me know your thoughts.
You seem to be on the right track.
But your mathematical and statistical assumptions are quite separate from reality.
1. You are presently in a job, which is paying you a quite decent sum (but you are not very happy in this job). Something like a high paying bond situation. In this scenario, you can balance it with a predominantly stock portfolio and manage accordingly.
2. After some years (10 you have estimated, but I would assume that to be flexible), you want to change this Bond (or bonded labor) job to something which you love (ideally great), but which inherently is a kind of hit-and-miss job (like a stock) with no certainity in either the cash flow or the any estimate of the amount when it occurs. In that scenario, you need to balance it with a predominantly debt portfolio and manage accordingly.
Now, the question comes, how much is the amount at which you can do that Change.
Basic assumptions on the basis of history:
1. Inflation is the biggest problem (in present terms, it is anywhere between 9-12-14%, depending upon your needs. Unfortunately, we do not have credible statistics). In all your assumptions, you will have to take care of this figure. In future, it may decrease, but we do not know.
2. Real return = Nominal return of portfolio – inflation
3. Debt instruments generally give negative real return at all stages, except when interest rates are falling (which is only in specific Gilts).
4. Equities can give positive real return. The more the duration, the more the chances of a real return. However, over some 10-20 year periods, the real returns of equities may not be able to be positive. We do not and cannot predict which 10-20 year period will behave like that.
5. Real estate is a very illiquid asset, which combined with non-regulation and other issues, is not at all recommended for you.
6. Commodities (including gold) are another hit-and-miss asset (For me, it is not an investment-grade asset).
Basic principles:
1. You need a proper written Portfolio statement (which will include all your basic principles, and roadmap about each and every thing (which you can think now or later). All decisions of selecting/buying/selling an asset need to be written, etc.
2. For a retirement corpus (and a statistically important amount, you will have to check out the Monte Carlo retirement calculator, which will give you a reasonable guide). In general, you need an above inflation return during your accumulation phase (the next 10 years or so), and probably an equal or slightly more than inflation return during your exceedingly long “retired” phase. For the former, a 70:30 ratio of equity:debt should be reasonable for you in the initial 7-8 years followed by gradual change to 50-50 or 40-60 over the last 2-3 years and thereon. It all depends upon the amount of corpus generated and your+your family’s requirements.
3. For a statistically safe corpus, you need to generate an amount which is anywhere between 20-25-30 times your further annual requirement. Eg. if your current monthly requirement is 30k, that means an annual requirement of 3.6lakhs, which makes it 70lakhs to 1 crore corpus. And you need to get a real return over this corpus, to cope up with the inflation. A 10% inflation over next 7 years will inflate these figure to double, and so on.
4. Having 5 funds is statistically not better than 2 funds. Having a division among arbitrary classes (large cap, large-mid cap, mid-small cap, microcap, flexicap, etc) is also not statistically significant. Most important remains your asset allocation in generating long term returns. Hence all this micromanagement is just not so important.
So, get hold of things and do some calculations in a better manner. Regarding marriage of child, do you think you will be ready (or the next-gen will be) to waste a lot of money in marriage celebrations. And for child education after 20 years, I assume there will be lot many avenues (like bank funding, etc, <-- see US stats). Life is not an excel sheet. Be flexible and think with an open mind. Keep learning and investing. Hope this helps you. Ramesh
Dear Lakshmipathy, Although a lot has been discussed already by dear Ramesh. Still I want to put my foot in – At your current age of 31, thinking to retire at age 41 & then to keep on living for next 40-45Y i.e. age 85 at least is a sure shot way to ruin your future life.
Instead of some random nos, please sit & think for the impact of inflation to your retirement portfolio & the income from it. Also the fact that by your age of 41, even the schooling of your kid/s ‘ll not be over. I’m agree that for higher education you or your kid/s may arrange from education loans but what about basic schooling? Also what about the increased living standard?
Please think over it. Even a modest inflation rate of 7% can throw big surprises after 15-20-25-30 years. My aim is not to make you fearful but to aware you about the path ahead & how many pit falls are there.
Thanks
Ashal
Dear Lakshmipathy G, can you tell what ‘ll be your mly expenses after 10Y from now onwards i.e. age 41 & @ age 45, 50, 55, 60, 65, 70, 75 & 80Y. I’m not joking & quite serious about your query. Please answer.
Thanks
Ashal