Mint, along with the Hindustan Times and NDTV, brings you a personal finance show called Let’s Talk Money. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, editor and senior anchor, special programmes, NDTV, aims to answer viewers’ questions about money-linked issues. This is an edited transcript of the show that was aired over the weekend on NDTV Profit and NDTV 24x7.
Natarajan: The capital markets are on tenterhooks. The earthquake in Japan, followed by a tsunami, and then a radioactive leak from Japan’s troubled reactors—no one knows for sure what the fallout of this will be... We’ll take each of your questions, broadbase our answers in a way that you glean enough information to make your savings work smarter for you.
Karthikeyan Ravikumar, 25, information technology (IT) executive, Bangalore
Financial tips: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money show. Photo by Ankit Agrawal/Mint
...I have three major questions regarding my financial planning.
1. Housing: ...Currently we are staying in a rented house. I would like to buy a house here in Bangalore. Is it a wise decision, given my financial position? If yes, what should I cut/add in my monthly budget to accommodate the EMI (equated monthly instalment) for this loan?...
2. Gold: Considering that there is going to be a need for gold jewellery for my sister’s marriage six years down the line, what is the best instrument to invest in gold?...
3. Personal financial security: I...am currently uninsured. What kind of health and life insurance products should I be looking at?... What is the best option for my pension planning? Is NPS (National Pension System) a good option?
Halan: ...First question is on the house. I don’t think there is enough money to put down for a house and if you do, it will be really a small house far away from your workplace. I don’t think it’s a good time right now, I think you can fairly wait for four-five years for your career to settle down and build that corpus... In your email, you said there is a little bit of loan which you have taken from your mother and you are paying her back every month. It’s very good to be responsible and do that, but because it is a family...it will be a good idea to take that money. I am not sure what she is doing with that money. Maybe it’s just sitting in a savings account. So it’s inefficient use of family money. You can put that money into equity fund and build a corpus by which you can buy a house in which you all can live together.
Related to that is a gold question. Again, I understand the sentiment to do the right thing, the good thing for your sister, her marriage. She is in college. She will start earning. Allow her the responsibility of putting the money together. Your resources right now are small. I would want you to conserve that—which again leads to the insurance questions. You need money to build that insurance shield and the corpus for your house and own emergency corpus. Insurance, you must buy a Rs50 lakh term cover, no rider nothing. Buy for the longest term you can—at this age Rs50 lakh policy will only cost you Rs5,000. The larger amount you can buy at this age, the better it is. At the age 40, this will cost you five-six times more...
Health insurance, you need cover for your mother, sister, and individual policies of Rs2 lakh each, then later top it up with family floater and I think he does need to start in mutual funds.
Natarajan: Yes, but let me tackle that highest NAV (net asset value) question. What do you see when you see these products promising you highest NAV in unit-linked insurance plans... Most of us would believe that we’d get the highest possible return with zero risk... Nothing comes for free and we need to look at all the products that are guaranteeing NAVs under scanner. Fund manager moves your money between debt and equity to protect your capital. So what does it do, it reduces the returns you would get from a pure equity-linked product. Second costs of such products are also higher.
Halan: When you think of highest NAV you think of highest equity NAV, at best you will get 5-6%. You are better off in a PPF (public provident fund).
Natarajan: We looked at you mutual fund portfolio, Karthikeyan. MF portfolio, not done well at all... Tata Midcap has been a huge underperformer. It returned 3.66%, while category average at 7.64% is double for five years. And the underperformance can be seen even over three years and one year performance. Reliance Vision is again something you can switch out of. The fund has lost steam. Sundaram Capex is underperforming. Redeem out. You need to rejig your portfolio to include one large cap name... two multicap outperforming fund and maybe one mid and small-cap fund...
Edwin Amaladha,33, IT executive, Singapore
I have bought a new flat in Bangalore recently, planning to stay (there) when I come back after a few years. Flat is worth Rs31 lakh, loan amount is Rs23 lakh, 10 years’ tenure, Rs29,800 monthly instalment. I have started seven mutual fund (MF) systematic investment plans (SIPs), investing Rs7,000 per month... All the MFs have planned for 20 years. Rs40,000 is invested in fixed deposit (FD) at 8.25 % return. Rs2 lakh is invested in equity shares. I am not good with trading, hence need to move my account from trading account in one year time frame. Planning for Rs50 lakh term insurance. Rs2 lakh (is spent in the) purchase of jewellery for my family every year... I am looking into two balanced mutual fund and midcap fund Nifty Junior to invest Rs5,000 per month... Is there any good plan to invest in my kids’ name with medium risk, apart from MF?
Halan: OK, Edwin, not related to your question, but looking at your email, you say that there is no PF (provident fund) benefit in the firm you work.
Halan: OK, when you have a core PF, we take that as your debt component and then invest everything else in equity. In your case, you should have Rs70,000 each for you and your wife in PPF in India and also you need to open the NPS account. You should choose the equity plan, means 50% in equity index fund and rest 50% in safer government securities. It’s a great product, low cost and returns are higher than EPF.
You should put 15-20% of your basic into NPS product, your question was on fees structure of mutual funds. Mutual funds are right now no load, at the end of the year there is a charge of 1.75-2% which is taken as a charge to maintain fund. If you exit before a certain period, there is a exit load, but we know an LTM (Let’s Talk Money) viewer will not exit.
Natarajan: They won’t, because we are saying that you should invest in equity for long term, but, Edwin, you have a very good mutual fund portfolio. You can keep most of the funds you have... The only one which has underperformed hugely is the BNP Paribas equity. It’s been a underperformer and hugely! So switch from it. Tata Infrastructure has given negative returns in the last three years, but that mirrors the sector’s performance. If you have faith in India’s infra growth story, and a bit of patience, then Tata Infrastructure fund is a decent bet to stay with...