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Business News/ Opinion / Online-views/  Never target portfolio returns above 12% over the long term
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Never target portfolio returns above 12% over the long term

Never target portfolio returns above 12% over the long term

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I am 36 years old with a monthly salary of 40,000. Since 2007, I have been investing 2,000 in HDFC Top 200 and 1,000 each in Birla Sun Life Frontline Equity and DSP BlackRock Top 100. Since June 2011, I have been investing 2,000 in ICICI Pru Dynamic Fund. I pay an equated monthly instalment (EMI) of 15,454 for a home loan. I have 1 lakh, which I want to invest in a debt fund or fixed deposit (FD) and invest the interest in an equity fund through a systematic investment plan (SIP). I want to create a corpus for my 14-month-old daughter. My company gives a medical cover of 3 lakh. Please advise.

—Venkat

Further, you can invest your surplus funds in bank FDs since you are under the lower tax slab; the monthly interest can be reinvested in an equity fund. If you go for mutual funds, you will pay more by way of dividend distribution tax and there will be no assured income. With high deposit rates, it will be prudent if you lock your funds for a long period and opt for monthly income. You may choose a fund from your existing pool of funds.

My monthly income is 30,000, of which I plan to save 10,000. I invest in Public Provident Fund, or PPF, ( 2,000 monthly) and a life insurance ( 24,000 annually). I want to save 6 lakh in the next three years. Where should I invest to reach my goal?

—Ritika Naithani

You have a good savings rate. However, your goal and types of saving do not match. Do you want to save 6 lakh in three years or do you need the same in three years? In case you have a need, then both PPF as well as life insurance will not be able to give you any money at such a short notice.

It is not that these instruments are not recommended. PPF is one of the best tax-free investments, but it should fit as a long-term investment. Similarly, life insurance is meant to provide a life cover and is not an investment and there is no way you can consider the same for the short term. Within Insurance also, you should preferably have a term plan, which gives a high sum assured at a low premium.

Your savings of 10,000 per month over three years will not be able to create a corpus of 6 lakh. You need to plan in a realistic way and should not target more than 12% return over the long term. In other words, you should try to increase your savings, if possible, or increase the period from the existing three years to perhaps four years. Don’t take unnecessary risk on the belief of making extraordinary returns.

Queries and views at mintmoney@livemint.com

Surya Bhatia is a certified financial planner and principal consultant, Asset Managers

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Published: 09 Feb 2012, 09:41 PM IST
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