Readers' Corner: Financial planning

Which category of equity funds is good for first-time investors who are wary of stocks? I have read in some places index funds are the best and in other places balanced funds are the best. Request you to provide reasons for your answer?

Knowledge and conviction are the two things that will make an equity investor successful. Knowledge that equity funds invest in profitable companies and conviction that you must hold this investment even when the economic environment is not favourable. Index fund is a passive mode of investment in equities and you may not see good returns for many years. Balance funds invest about 65 per cent of their funds into the stock market and the balance to fixed income market, thus providing some cushion during the downfall. Ideally, use 100 per cent equity funds, stay invested for five-10 years, and watch your wealth multiply over time.

I am planning to invest in Sukanya Samriddhi Yojana (SSY) for my daughter, who is seven. I want to know if it’s the best possible option for the next 11 years, or should I opt for child plans from insurance or mutual funds?

SSY is not a bad option but is not the best option. Ideally, consider mutual funds and within that aggressive mutual funds like mid- and small-cap funds to create enormous wealth for your children. I do this myself. Consider this: Rs 1.5 lakh invested every year for the next 11 years in SSY will give you guaranteed Rs 29 lakh. Against this, you can expect a minimum of Rs 42 lakh or more via mutual funds. Most child plans from most insurance companies are the worst plans to buy. 

I met a financial planner. We discussed many things in detail. At his office, he even showed me a sample plan for the report he would make for me. But when I asked him to let me take the report home to study it in detail, he refused. He didn’t even allow me to click a picture of the report on my mobile. It is almost a deal breaker for me. Why wouldn’t a financial planner part with his sample or demo report? Is there something fishy?

A financial plan is all about putting in some financial discipline. A planner is someone who will guide you, be with you and advise you on all matters of financial management. That is all that there is. Focus on the person and not on the product he is going to deliver. Appoint a planner based on the confidence that you feel in working with that person. Everything else is irrelevant. If you search in Google, you will probably get 25 varieties of sample plans. No need to spend time studying samples. Get into action mode. Appoint someone or do it yourself, but do this.

I am usually left with little money for 80C tax-related investments. I am 33, single and get a net salary of Rs 53,000 every month. Please suggest where should I invest if I have Rs 8,500 a month to spare for the next five months?
 

For 80C investments there’s is only one best option in my view — ELSS (equity-linked savings scheme) offered by mutual funds. Please understand that we must not do tax-saving investments just because we are obsessed with the idea of not paying tax. Understand that you are compromising cash flow against a few thousand rupees of tax. When income rises you will have additional funds that you can afford to lock up for a few years in tax-saving products. For now, don't stress yourself and live your life.

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The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in