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: Let’s talk money and bring in a little romantic flavour in this week leading up to Valentine’s Day. We’ll use 14 February to get all you young couples to set some ground rules to get love going forever and also get rich in the process!
Halan: Three things you need to remember. One, of course, pool the resources. Our money is much more powerful than your money or my money. So joint accounts for expenditure, insurance, investments. Second, you need to have three bank accounts—one is the salary account for the husband, one for the wife and the third account you are crediting with money you are going to spend every month. And third, and most importantly, make a savings target.
Natarajan: So 20-25% is a great target if you are young and starting off and starting out early also has huge benefits. Our first guest...
Neeraj Singh, 37, government employee, Noida
I have been thinking of taking money out of my PF (provident fund), around 50%, and making a more balanced portfolio in terms of equity, MFs (mutual funds), FDs (fixed deposits), gold bonds and PF. What percentage of money should be invested in which instrument to be a portfolio of an aggressive investor?
To have the best tax benefit, what should be the portion contributed in PF and what in the SIPs (systematic investment plans) in case I am able to save Rs40,000 per month?
Which are the MFs and equities you will advise in case I want to invest Rs7-8 lakh of my PF money to have a more balanced investment portfolio?
Halan: Those are little warning bells when people talk about taking out money from the PF. (If) you want to hit the market with large amount, you are going to break your FDs. I think the current downturn in the market is very good because it also makes you revalue what you are going to do.
You have a Rs20 lakh cover from your office. Your need according to your income is at least Rs1 crore. Buy a Rs80 lakh term policy. You will not spend more than Rs10,000-15,000 on the policy you need to buy and for what tenure on the premium every year.
Second, it frightens the life out of me when you say you want to withdraw from your PF and invest into stocks or funds. PF is your safe money, it’s a gift from the government. Three benefits. It’s a guaranteed zero-risk product. Your employer’s contribution is tax-free and you are on to an EEE product—which means exempt exempt exempt. You don’t touch it, it is salting away 24% of your income into something that is so fantastic.
I think you want to get equity exposure in your portfolio. For that your money shows there is almost Rs40,000 of surplus left after you have made your PF. You have made your insurance premium after you have made your all the current investments. After that you have Rs40,000 left. Now, what stops you from investing that into an SIP? So touching your PF is a bad idea, not for a marriage, not for the house, you don’t touch that money—it’s your long-term asset.
Kiran Gowda, 31, doctor, UK
In June 2010, I bought a 1,200 sq. ft plot on composite loan (home construction loan: Rs70 lakh) through IDBI at floating rate 10%. Now (I’m) paying EMI (equated monthly instalment) of Rs23,000-24,000, which would increase to Rs75,000 a month by July 2011. Should I switch to some nationalized bank like SBI (State Bank of India)?
Natarajan: Not really, Dr Gowda, because most banks are now very very close to that 10%. You are charged 10% by IDBI, SBI does have that teaser rate but there is a cost of switch over, which is 2% from one bank to another, and I don’t think interest difference is big enough for you to switch because you may have a scenario that Reserve Bank of India may hike rates again or any other bank like SBI or any other bank that you may consider will be very close to 10%. It’s already at 9.5% at most of the banks.
Halan: And 10% doesn’t sound too bad. Unless you feel that rate is going up faster than the other banks you may have a case to change, but as of now, (given the) whole transaction cost and whole time cost that it takes, at this point I would say no.
Gowda: I want to know the life insurance and health insurance which is valid for overseas citizens.
Halan: Life insurance is valid but health you should buy in a country where you are, so you should buy a local policy there. But life cover you can buy from India.
Natarajan: But (with) health cover what will you do until and unless you are planning to come back here, because hospitals covered will all be for India and will not be valid for UK? So, yes go ahead, buy that policy, buy health policy, wait to return to the country.
Gowda: What would be the best health policy for my parents?
Halan: Is it Rs4 lakh per person or floater?
Gowda: It’s a floater.
Halan: I think Rs2 lakh each of individual will cover them very nicely, so it’s good that they have Rs4 lakh at that age. I don’t think it’s such a big issue now, so they can look at some pure health insurance companies which can give them cover till 80-85 and some give them cover till 100. You should look at stand-alone health insurance companies.
Biswajit, 54, doctor, Midnapore, West Bengal
I have invested in Nifty ETF of Benchmark MF and want to invest more in systematic way. It invests in 50 companies of Nifty in proportionate manner. But I have one doubt. Can I receive dividends on these shares? There is no mention of choice of dividend or growth option. If I do not receive dividends then it is invested as a growth fund, i.e., dividends are reinvested in the same shares in the same proportion. Then the NAV (net asset value) of the units of the scheme should grow ahead of and faster to Nifty. But is that happening? I doubt. Please enlighten.
Halan: You are right. In an exchange traded fund, buying stocks whenever there is a dividend that is declared or a bonus, the portfolio does rise in value. So the NAV will rise above the index value...so the fund will periodically declare a dividend and the NAV will come back to in tandem with the index and that dividend will come to you separately. And if you look at the factsheet at any of these funds, you can go on the benchmark site and there is a whole dividend history periodically. I think between Rs3 per unit to rRs8 per unit. Yes, you do get that benefit in an ETF through the dividend paid out to you.