In our last issue of Yours Personally – The Financial Planning newsletter, we received a number of queries asking for financial planning advice. We have chosen queries at random, and provided mini solutions here. Personal details of the people who write in to us are kept strictly confidential and hence have not been given below.

 

1. Dear sirs,
   
   I am 51. Advocate. Average Practice. Running very bad of health. One Son. One Daughter. Teenagers. Wife. Rs.5.00 Lakhs only in hand as liquidity. Own House. Plz advise the most secure and highly beneficial source of investment to meet house hold expenditure and to secure future of children and mine with this tiny amount .
   
   SOLUTION:
   
   Dear sir,
   
   No amount is too small to start getting your finances in order.
   Please do the following 3 things immediately:
    
   1. Build a contingency reserve of 6-12 months of living expenses for yourself and family in case of any emergency
   2. If you are not adequately insured, please get the following insurance: - Term Plan (not ULIP, or money back, or endowment – only term plan) - Mediclaim – family floater
   3. Start cutting down on expenses and saving more money each month – invest the savings into bank FDs and highly rated corporate FDs for fixed income, and invest into well diversified equity mutual funds with a long track record for long term investing (more than 3 years time horizon).
   
   
   If you are seeking a professional financial plan to be created, please contact our branches.
   
   Wish you all the best with your health and wealth!
2. Dear sir,
   
   Your newsletter has been quite informative.
   I am presently working as Captain in Singapore based company.
   I would have certainly subscribed to your services but have intentions of going abroad shortly.
   I will give it a try in Jan 11.
   I have query regarding FMP:
   How is FMP investment taxable?
   Is there any TDS on the maturity amount for NRIs as my status is NRI for this financial year?
   Presently which FMP gives best yield and are there AAA rated FMP open for subscription?
   
   SOLUTION:
   
   Dear sir,
   
   Thank you for your kind words.
   
   Responses to your queries are as under:
    
   1. How is FMP investment taxable?
      Answer: Being a debt fund, any capital gain / appreciation from FMPs is taxable, as follows:
      - Short term capital gains: (Period less than 1 year) Taxable as per tax slab (For NRIs TDS @ 30%) - Long Term Capital Gains: (Period more than 1 year) 10% without indexation and 20% with indexation (For NRIs TDS @ 20% after providing for indexation)
      If investment was done in FMPs of less than 1 year and dividend option was chosen, then appreciation will be distributed as Dividend by the fund house and Dividend Distribution Tax will be 13.841% (12.50% + 7.5% surcharge + 3% education cess).
   2. Is there any TDS on the maturity amount for NRIs as my status is NRI for this financial year?
      Answer: Yes the Tax is deducted at source on the maturity amount for investments from NRIs
   3. Presently which FMP gives best yield and are there AAA rated FMP open for subscription?
      Answer: Currently 1 year FMP is expected to provide yield of 6.80% to 7.25%. Ongoing FMPs from a well reputed fund house can be looked into based on your investment time horizon.
      
      All the best of luck with your investments!
3. Sir,
   
   I want to invest Rs 20,000 every month for long term, I heard & read about mf & sip but my friends’ experience is not well, they 20 % lost their capital, I just invest 100000 in post office & interest reinvest into post office recurring account - is it right way?
   
   SOLUTION:
   
   Dear sir,
   
   Rs. 20,000 is a good amount to invest each month for the long term i.e. more than 3 years.
   If you are investing for the long term, you can invest into diversified equity mutual funds with good performance and long track record.
   Please choose your schemes carefully, based on your investment time horizon and your risk appetite. An SIP (Systematic Investment Plan) is a good way to invest for cost averaging.
   Your friends may have invested into unsuitable schemes. Choose diversified equity mutual funds for a long term investment horizon, to see capital appreciation in the long term.
   
   All the best with your investments!
4. I am a working since last two months (my age is 23). I am planning to invest Rs. 7000 pm in Diversified equity MFs. How much is it feasible to invest in the said area at this point of time and what are the other better options available. Since I need to go for Higher studies after 2 years.
   
   SOLUTION:
   
   Dear sir,
   
   When investing for a time horizon of less than 3 years, it is not advisable to go for much equity exposure due to market volatility. Therefore, it is not recommended to invest the full amount into equity mutual funds.
   
   You can split your monthly savings into two halves, invest half via SIP into a short term income fund (full debt exposure giving 7 – 8% yield p.a.) and invest the remaining half via SIP into an MIP (monthly income plan - up to 35% equity exposure) or a balanced fund (up to 65% equity exposure) which will give a slightly higher return due to the risk incurred.
   
   All the best for your investments and your higher studies!
5. Dear Sir/Madam,
   
   I am working in a private Company, aged about 46 years and wanted to retire at 60 years. I have opened a PPF account in 2005 on my name and my wife's name for our retirement purpose and the present balance in each account is Rs.2.50 lacs.
   I want an amount of Rs.15000/- per month at present cost for both my wife and myself after retirement. Recently I came to know about New pension Scheme(NPS).
   
   Please advise :
    
   1. Shall I continue PPF account? If so for balance period how much amount I have to deposit in each account , per year to get my proposed income as mentioned above?
   2. Shall I continue the PPF account with minumum deposit of Rs.500/- per year and Open NPS account? If so how much amount I have to deposit in each account to get the targeted income?
      One NPS account is enough or shall I open seperate account for my self and for my wife who is an Insurance advisor.
   3. Instead of PPF and NPS , shall I start investing in mutual funds in SIP method, for my retirement corpus? If so kindly suggest the funds, and how much of amount I have to invest monthly in each fund? My risk appetite is moderate to high.
   4. Can I invest in any pension ulips? If so pl. suggest the scheme.
   
   Kindly advise out of the above options which option is better( whether PPF, NPS, MFs or Pension ULIPS) for retirement purpose.
   
   We look forward for your valuable advice in this regard.
   
   Thanking you
   
   SOLUTION:
   
   Dear Sir,
   
   If you require Rs. 15,000 per month post retirement to cover living expenses for your wife and yourself, then by the age of 60 years you will need to create a corpus of approximately Rs. 1.38 crore, so that you can put this money into a fixed income instrument, and live on the interest and principal.
   
   As you have a 14 year time horizon for your retirement which is a very good time horizon, you should be investing majority of your investible surplus in diversified equity mutual funds and a smaller proportion into debt instruments such as PPF and NPS. You must especially not opt for Pension ULIPs, charges and commissions on ULIP products are still too high, these are not attractive products.
   
   An SIP into a good portfolio of 4 equity mutual funds of Rs. 6,000 each will help you achieve the corpus you need by age 60. Opt for diversified equity mutual funds with a long track record and good performance history.
   
   Wish you all the best with your investments!
6. Can you suggest a good investment mix for me based on the following criteria:
    
   1. Family of 4 – self, spouse (ages 40 & 36) and 2 children aged 4 and 6.
   2. Rs. 30,000 approx per month available to invest
   3. Existing investments: Own house, Ins policies of Rs. 12L for self and spouse, Rs. 1L each family mediclaim
   
   SOLUTION:
   
   Dear Sir,
   
   Based on the data provided by you, it can be assumed that you are planning for the following financial goals:
    
   1. Both children’s education
   2. Own Retirement
   3. Both Children’s marriages
   
   Given the age of each family member, each of these goals has a 10 years or longer investment horizon.
   The best investment for this time horizon, assuming a medium to high risk appetite, would be equity mutual funds. You can invest 75% of your investible surplus into diversified equity mutual funds, 15% into debt mutual funds and 10% into a good Gold ETF (exchange traded fund) to hedge your portfolio and balance out against equity market volatility.
   
   Be sure to invest in Gold ETFs (they invest directly into gold, not gold mining companies, so returns are directly linked to the actual price of gold) and not Gold Funds (they buy stock in gold mining companies – giving you equity exposure rather than gold exposure).
   
   The most important thing to do is 3 years before each goal, redeem a certain amount of money (required for the goal) from equity and invest it into debt. This will keep the goal portfolio safe from equity market volatility. Do this for each and every goal.
   
   Wish you all the best on your investments!
7. Hi
   
   One of my close relative recently lost her husband and is now solely managing her family affairs. On the death of her husband, she has received a lumpsum amount of around Rs 40 lakhs from PF, gratuity etc. In addition, her annual income from pension (of her husband) and her job is around Rs 5lakh per year. She has 2 dependents - school and college going child and does not have any other liability - home loan etc.
   
   She does not need this lumpsum money for the next 5 years since her annual income will suffice for any expenditure - day or day or education related. In 5 years, she will need money for higher education of a child and also for marriage of one of the children.
   
   How should she structure her investment of this lumpsum money to generate returns and get a decent return? Her equity exposure right now is through 4 MFs - large cap funds for a total of Rs 20000 per month through SIPs. Should she increase the investment into more MFs? Should she invest in a debt fund given her current debt exposure is through FDs? Should she put in more money lumpsum in the market at current levels?
   
   In addition, she is taking a term insurance of Rs 50lakhs and a family floater health insurance for her family.
   
   Kindly advise.
   
   SOLUTION:
   
   Dear Sir,
   
   Please accept our sincere condolences for your friend’s loss.
   
   In such situations, the first thing to do is assess contingency funds and check one’s insurance.
   It is good that your friend is adequately insured with a term plan as well as health insurance by way of family mediclaim.
   
   The first thing she should do is set aside 12 months of living expenses in a contingency fund – she can invest in liquid funds for this purpose.
   
   Once this is done, she can increase her investments into equity mutual funds for the purpose of creating a corpus for her child’s higher education and marriage. These investments can be made into balanced funds and MIPs (monthly income plans) having both equity and debt exposure. When the goal is approaching, funds should be redeemed from equity and invested into a fixed income instrument to protect the goal corpus. The lump sum that is currently available to her can be invested into the equity markets in a staggered manner i.e. as an STP (Systematic Transfer Plan) from a debt fund into a corresponding equity fund, over 6 months. She will need to invest into 3-4 debt funds, and invest from there into the same fund house’s diversified equity fund. She should avoid all sectoral / thematic funds as she cannot afford to take very high risk on this corpus.
   
   For a more detailed response, we would need further details such as monthly expenses, your friend’s age, risk appetite, current investments, goal time horizons and so forth.
   
   All the best for the future!
8. Sir,
   
   I would like to know whether buying gold once in a year during Diwali from my trusted gold smith is better than investing regularly in ETF i.e. buying one unit of ETF,or investing Fixed amount of money monthly in ETF. Which is costlier?
   
   Please advise me. Thanks.
   
   SOLUTION:
   
   Every investor should have 10% - 15% of his / her portfolio in Gold ETFs.
   A Gold ETF is a better investment option than physical gold, for many reasons such as it is more tax efficient, it works out to be cheaper by way of storage and the fact that gold ETFs are not sold at a premium, while physical gold can be sold at a premium.
   
   Also, investments in gold can be done on a monthly basis, not only at Diwali. A small amount can be invested every month to slowly build your gold portfolio.
   For more detailed information on how a gold ETF is better than physical gold, please Click Here to read our article on ‘Investing in Gold: The ETF Way’.
   
   All the best with your investments!
   
   We hope this has been useful.
   
   For a personalized and detailed financial planning solution, please Contact Us

 

Disclaimer:
Answers to the queries are based on facts provided and PersonalFN would have not responsibility for the consequences of the outcome based on these solutions.
For a detailed analysis of your financial situation, you should consult a financial planner.

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Comments
jogbzita@uni-miskolc.hu Jan 19, 2012 I went to tons of links before this, what was I thinking?
jaybhutada3@ibibo.com Mar 05, 2013 Hello sir,  i have 100000 rupees i want to double with minimum years can u suggest me for different type of investment

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