Harsh Roongta answers your questions about personal finance every week. He is a chartered accountant and Sebi-registered investment expert.
I have a query regarding my fund allocation. I am 22-year-old, have graduated from college last year and currently working. I plan to invest Rs 3,000 every month. I have started SIPs for the following funds:
Reliance Tax Saver ELSS (Rs 500 every month)
SBI Blue Chip Fund (Rs 1,000 every month)
HDFC Balanced Fund (Rs 1,000 every month)
Axis Long Term Equity Fund (Rs 500 every month)
It is really great that you have started investing as soon as you have started earning. That's the first rule of good investing – start early. The second rule is to invest on an automatic basis. Invest first and spend later or you cannot spend what you don't have. Systematic monthly investments ensure that a portion of your income is automatically invested and is not available for spending.
Just to give you an idea if you continue to invest Rs 3,000 every month into good equity mutual funds for the next 38 years (till you reach 60 years) and if the equity mutual funds provide a return of 12.60% per annum then the amount accumulated will be around Rs 3.35 crores. This amount, though it looks huge, is available only after 38 years. Its equivalent value today is Rs 18 lakh if inflation is assumed at 8%. The long and short of this is that you will end up saving Rs 18 lakh in today's terms if you continue investing Rs 3,000 per month for the next 38 years. The sum of Rs 18 lakh again may appear to be quite high but it may not really be sufficient to meet all your goals.
This brings into focus the need to invest with specific goals in mind. The advantage of investing with specific goals (let's say building a retirement corpus after 38 years) are many. Firstly, you will realise whether the amounts you are investing are enough or not. Even if the amount needed to be invested to meet all your goals is high – just being aware of the fact that you are not investing enough will ensure that you increase the investments in the future when your income increases or a windfall is received. Additionally, goal-based focused investments provide the necessary discipline to avoid temptation to withdraw the invested funds or to skip the SIP in any month.
You should consult a fee-based investment adviser who will help you to finalise your goals and will also suggest investments that will optimise the allocation of your investments between debt, equity, gold and real estate. The adviser will also assist in finalising your life (term insurance) and health insurance needs.
As far as your existing investments are concerned all four funds mentioned by you are highly rated and doing well.
Reliance Tax Saver ELSS & Axis Long Term Equity Fund are highly rated tax saving ELSS funds which invest with a 3-4-year time horizon and also provide a deduction under section 80C.
SBI Blue Chip Fund is a highly rated equity mutual fund that invests in the companies that have the largest market capitalisation in the country.
HDFC Balanced Fund is a highly rated balanced fund that invests around 70-75% is equity and 25-30% in debt instruments.
However, you are over-diversified in terms of number of mutual fund schemes. Choose any one ELSS as per your advisor and may be one balanced fund (if part debt exposure is required).
I repeat that you should consult an investment adviser to draw out a proper financial plan for yourself.
Harsh Roongta is a chartered accountant and Sebi-registered investment expert. Send your queries – be it on mutual funds, tax, loans or savings – to personalfinance@dnaindia.net or tweet them to @AskHarshdna'
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