Ask Mint Money | If you have a long-term horizon, high equity exposure is advisable

Ask Mint Money | If you have a long-term horizon, high equity exposure is advisable

I have a systematic investment plan (SIP) of Rs2,000 in HDFC Equity Fund Growth since November 2007. I had redeemed about Rs90,000 to buy a house and am left with Rs1 lakh. I have a home loan for 10 years. Should I redeem Rs1 lakh and prepay my loan to reduce the interest on principal amount or should I open a fixed deposit (FD) and start a new SIP?

—Hiren Chopra

The SIP in HDFC Equity Fund has given you good returns. You have already redeemed close to your principal amount. As far as payment of housing loan is concerned, you need to check whether your earnings in the said investment will cover your tax-adjusted interest payouts.

However, as your investment is in an equity asset class the returns will vary and you will not be able to judge the same over the short term. Hence, you need to see the return over the long term and for that you need to determine your investment horizon. In case you switch the amount to an FD, the same rule will be applicable but then the answer is clear. Your earnings (tax-adjusted) will not be more than your interest payouts.

The answer is not very easy. However, if you have stopped your SIP due to cash flow constraints, then it is advisable you redeem the balance Rs1 lakh and start an SIP.

I am 21 years old and I earn around Rs9,500 per month; I can invest Rs1,500. Where should I invest? I am the only earning member of my family.

—Sagar Mungekar

It is good you want to start saving but I must admit it will not be easy for you as you are the only earning member in the family and going forward you may need funds for your family or for your higher education. In the current scenario, you should start a recurring deposit in your bank. Also, start educating yourself on investments and asset classes as it will come handy later.

I am 26 years old and earn around Rs40,000 per month. I want to invest in a pension plan. I am considering National Pension System (NPS). If I go for NPS, which class should I select?


NPS is a good option. However, it has not developed as per expectations. But it is a matter of few years when the same should grow leaps and bounds. As far as the asset class within NPS is concerned, you should opt for asset class E.

This will invest in equity asset class subject to a cap of 50%. High equity exposure is recommended because you are young and can have a long-term horizon. Also, the nature of the scheme is such that you have to hold the investment for the long term. And the best performing asset class over the long term is equity.

You should be aware that any equity investment carries a risk. But in the long term, you should be able to ride volatility.

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

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