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: HDFC (Housing Development Finance Corp.) and ICICI Bank (Ltd) have ended teaser rates on home loans. Remember RBI (Reserve Bank of India), in its review of the monetary policy, had made it clear that it was uncomfortable with teaser rates offered by banks on home loans. Banks were asked to make additional standard provisioning for teaser loans. Monika, does this signal the end for teaser rate home loans? And is that good in general?
Halan: They were not harmful, but they were not helpful either...two-thirds of all the home loans were construction-linked, which means by the time you came on to your full EMI (equated monthly instalment), that low-rate period was already over. I think also after the LIC Housing Finance issue, there is a little bit of panic with the regulators and I think they are pushing banks to stop these home loans. They were not really helping you, they were helping the builders. (LIC Housing Finance has been linked to the loans-for-bribes scandal.)
Investment tips: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money
Natarajan: So don’t lose heart. If the teaser rates don’t continue, you should focus on striking the best deal over the base rate with your home loan company. You should target anywhere between 1-2% over the base rate.
Dhruv Shah, 32, businessman from Canada
I moved from India to Canada six years back. I make Rs50 lakh a year and my wife makes Rs14 lakh a year, converting our earnings into rupees. We don’t have any kids yet, but planning one two years from now.
I started an LIC policy five years back for Rs50 lakh coverage and two years back I took another policy of Rs1 crore. Both will be giving me monthly returns after the age of 50. In addition, I started two years back a Rs25 lakh LIC policy for my wife which will give monthly returns to her after she turns 47. Recently, a month back, since the market is doing well in India, I have started SIPs in three funds from the Mint 50 list: Birla Sun Life Frontline Equity Growth—Rs5,000 per month; HDFC Top 200—Rs5,000; ICICI Prudential Infrastructure Fund—Rs5,000. In addition, I have invested Rs2 lakh in HDFC Prudence fund. Do I need to add any or delete anything? Lastly, we bought a two-bedroom apartment of our own this year worth Rs1.75 crore, but on mortgage, where I have made a down payment of 10%. I am paying the rest in monthly instalments. Am I doing the right thing? Will I be able to support my family if I plan to retire at the age 50 in India?
Natarajan: Here’s my take. Look at building at least a Rs3 crore corpus for retirement. Assume that Rs3 crore will fetch you a yield of 8% in safer investments per annum—you will get about Rs24 lakh per annum. Now we have already worked out you need about Rs1.5 lakh a month or Rs18 lakh a year to manage monthly expenses. So you have enough money to spend and also a surplus of about Rs6 lakh to keep investing. Remember you will also have to counter inflation in the years of your retirement.
Assume your investments grow at 12% per annum till you turn 50. Your corpus will grow to about Rs1.7 crore, so there’s a gap which needs to be filled and that’s a gap of about Rs1.3 crore.
The gap is easy to fill. All that you need to do is bump up your savings of Rs20,000 per month by 10% every year and you will easily reach the target of Rs3 crore at age 50, again assuming you will invest more heavily into equity funds and target a return of 12%. Bump up investment in equity mutual funds over the next three-four years. You already have a good portfolio chosen out of Mint 50.
Halan: You have an income of Rs50 lakh a year. You should have at least Rs2 crore of insurance cover. Choose a term insurance plan, go to ApnaPaisa.com, go to PolicyBazaar.com, search for the cheapest term plans. There are companies that will be able to give you one in Canada, you don’t have to come here.
Rekha Pillai, 47, teacher from New Delhi.
My money worries: income—Rs34,000 per month, investments—Rs23,000 per annum in LIC Money Back policy;Rs10,000 per annum in LIC pension policy; Rs40,000-50,000 per annum in National Savings Certificates/Kisan Vikas Patra; Rs1 lakh is lying invested in tax-saving mutual funds for the past three years; Rs5,000 per month in post office saving scheme; Rs3,000 per annum on LIC mediclaim policy. I have a house of my own and an EMI of Rs6,000 per month on my car due to end on April 2012. I think I need to look at a little more aggressive investing. I want to know about demat accounts.
Halan: In your mail you said that you are planning your retirement separate from your husband. Your money is separate?
Halan: In most marriages, they are content to pool in money and then target retirement together, but these are personal choices and what I suggest is that there can be a pool in the house where the husband and the wife pool in money for living expenses, medical insurance, household insurance in the proportion that you earn and whatever is left is for you and your husband to save, that choice is left to each person individually. My sense is that your surplus is around Rs10-15,000 a month.
Halan: Because of your PF (provident fund) and the cushion that your husband gives you in terms of your income, I would target equity-linked funds very strongly. Go for a balanced fund and a large-cap fund and don’t do any more fixed deposits with this extra income which comes in.
Natarajan:Just a few names which we would like to see in your portfolio—diversified equity funds like HDFC Top 200, Birla Sun Life Frontline Equity. You can also look at DSP BlackRock Top 100. Start an SIP (systematic investment plan) with your surplus of Rs10,000-15,000. You can look at Rs5,000 in a diversified equity fund, start another SIP of Rs5,000 in a balanced fund. HDFC Prudence, HDFC Balanced, Tata Balanced and Reliance Regular Savings Balanced are good names to go with. You will have to open a demat account with any of the broking houses. Go with a reputed name. Once you open a demat account, you will naturally get a little bit aggressive about your money, you can look at IPOs (initial public offerings) and FPOs (follow-on public offerings), which are likely to come up in the next six months to one year. So a lot of possibilities will open up in terms of equities once you open your demat account.