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.
Manisha: Today we have two live guests, so we’ll hop across straight to Bangalore to welcome our first guest, Ashok Kumar from Bangalore.
Investment advice: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money show.
Ashok Kumar, 38, IT professional from Bangalore
My first question is: What is the reliable asset class to build a corpus as part of retirement planning?
Halan: I think your question is broader; you want to know how to target retirement. Is that what you are asking?
Halan: So I am going to suggest you an approach; we will talk about products a little later. The goal of retirement planning is really to have incomes from different sources, so you can have income from pension, you can have income from rent, profit, dividend, interest. The biggest challenge for retirement is getting inflation-proof income, so you must look at building real estate, which will throw off rent 25 years later.
What do you do now? Your provident fund (PF) and your PPF (public provident fund) remain your best friends. You are going to look at these products for long-term safe investing. Other financial products linked to equity, direct stocks that you have, if you have the knowledge of equity funds, this is the basket of products that you need to use, and again, just remember, diversification is not just across asset classes, but even as a mental tool, when you are looking at different sources of income; so that is something that most people realize early on in their lives and leave it too late.
Natarajan: So you are saying real estate and equity, Ulips (unit-linked insurance plans) no?
Halan: No Ulips, absolutely not. No Ulips, no fixed deposit for retirement, you are hedged in risk-free assets through PF and PPF. So more real estate and equity are the only things which will give you inflation-adjusted returns.
Kumar: Which option of investment is less risky and beneficial for the consumer? Investing lump sum when the market is low or not timing the market and going for SIP (systematic investment plan)? Investment period is five years.
Halan: Well, you don’t time the market, experts don’t time the market, nobody can time the market. You will get it right once, you will get it right twice, but you will get it wrong an equal number of times. If it was that easy to really time the market, believe me a lot of people could have done just that; they could have got into the market when it was at the lowest and cashed out when it was at the highest, or close to its highest, and really never have to do any real work.
A lot of people make lot of money through equities and it isn’t necessarily by timing the market, it’s by picking up good value at the right price if you are going directly in stocks. But I think your question is with mutual funds and SIPs. Guess what, boring dumb SIP any day and rupee-cost averaging will do the work for you. You don’t have to worry, you will not get it right if you try to time the market. If you know the market, if you think markets have come down, they have given up 10-15%, you can bump up a little bit that particular month, top up your SIP, but don’t try and time the market.
Dr Yasir, 32, Bangalore
I am a doctor with yearly earnings between Rs5 lakh and Rs10 lakh with a wife, also a doctor and a son, two years old. I would like you to analyse my investments. I had SIP in SBI Contra, Reliance Growth, about Rs1.75 lakh invested. Now I have stopped the SIP. I put Rs4,000 each month in HDFC Young Star Ulip for my son, which is for another 20 years. I have a medical insurance in ICICI PRU Health Saver for myself and my family, for which I pay Rs25,000 per year. It gives cover up to Rs10 lakh. I have no life insurance till now. Please let me know if I need to add or modify anything.
Natarajan: Do you have public provident fund?
Dr Yasir: No.
Manisha: You have also stopped your SIPs. I will come to that second. You have a limit of Rs75,000 a year each for you and your wife as a first step, please start a PPF account. Monika has already outlined why PPF is important, but remember this is a safe investment, completely tax-free offering 8% returns and that is the first step to start building a long-term good corpus. Why have you stopped your SIPs?
Dr Yasir: I was short of money and markets already reached 21,000 (points), I started them when markets were at 10,000.
Natarajan: So I am not saying you took the wrong decision, but did you do the right thing, that’s also a very big question mark, would you be able to get it again? Markets have come down from 21,000, we have already shed about 7%. My suggestion is start your SIP again, you are very young, you need to grow, go aggressive on equity and grow your portfolio. If you do have surplus over and above your PPF, I think starting an SIP in Reliance Growth between the funds, map its performance or on the SIP parameter over the last 10 years and NDTV mutual funds awards jury found that Reliance Growth is actually the best performing fund.
Halan: Your health cover looks excessive to me, you may need to rework that a bit. I think if you have Rs2 lakh cover each, it should cover you as a family, Rs50 lakh term cover for you and possibly Rs25 lakh for your wife.
One more thing. You are in private practice, you should look at the new pension system (NPS) because you don’t have the benefit of employees’ provident fund. Especially for people like Dr Yasir, who are self-employed, NPS is the product for the long-term, equity-linked retirement planning.
Natarajan: But after he exhausts his limit of Rs70,000 on both PPFs?
Halan: I think he has got the money.
Natarajan: So restart your SIP, look at Reliance Growth. SBI Contra has been a bit of an underperformer, so look at the Mint 50 list.