Chief executive of Wiseinvest Advisors Hemant Rustagi says that investors should first establish a goal, establish a time horizon and then accordingly build up a portfolio. �Don�t make a mistake of having one combined portfolio for all goals,� he said in an interview to CNBC-TV18.
Rustagi explains that investors who have only one portfolio will find it difficult to withdraw money from investment if they need money urgently. �If the market is not doing well at that time, you may not be able to get out of the market or if you get out you may have to book losses,� he said.
He also says that sole earning members of a family should take out a life insurance on themselves so that they secure their dependents� future.
Below is an edited transcript of his interview. Also watch the accompanying video.
Q: I am already investing Rs 8000 per month in equity SIP. I want to achieve Rs 1 crore in a 15 years time span?
A: I think you need to look at two or three things. You are looking at going for term plan which I think is a perfect thing because before you start your investment process makes sure that you have adequate risk cover in terms of life insurance as well as health insurance. Once you take care of these two, the entire focus then can be on the goal that you want to achieve over a 15 year period.
One thing for your existing portfolio is that even though you are investing for 15 years, you are investing in seven funds all of which are equity funds and one is multi class fund. Seven funds for investment of Rs 8000 is definitely a case of over diversification. You need to reduce your number of funds down to two or three funds.
Now you can look at three funds which are DSP Blackrock Top 100, which is a fund which invests in the top 100 companies in terms of market cap. The second one can be IDFC Premier Equity; this is a quality midcap fund. The third can be ICICI Focused Blue Chip which is again large cap fund. The only difference between this fund and DSP Top 100 is that DSP Top 100 has a broad diversified portfolio and ICICI Focused goes for a concentrated holding. Look at these three funds, don�t have too many funds.
Even if I assume a return of 12% for a period of 15 years, I think you can build a corpus of around Rs 38-39 lakh. You need to obviously invest more, but if you are not in a position to do that you can continue this process and increase it as and when possible.
While you have said that your one goal is to build up a corpus for securing your family and your own financial future, I am sure there is going to be other goals during this period. Don�t make a mistake of having one combined portfolio for all the goals. You need to actually establish your goals from the time horizon point of view - short term goals, medium term goals and long term goals. If you have only one portfolio keeping 15 year time horizon and if you need money after three to five years, the chances are the market is not doing well that time you may not be able to get out of the market or if you get out you may have to book losses. You may not achieve what you want to achieve, so establish a goal, establish your time horizon, and accordingly build up your portfolio.
A portfolio for a three to five year time horizon is going to be completely different from a portfolio which is for 15 years. For 15 year, you can focus on pure large cap equity funds or mix of large cap-midcap and multicap but for three to five years the focus has to be on a mix of debt oriented hybrid funds, equity oriented hybrid funds and maybe a large cap oriented equity funds. So if you do that I think you will not have any disappointment in the future and you should be able to achieve what you want to achieve over a period of 15 years.
Q: I can invest Rs 25,000 per month in the equity market with a time horizon of 10-15 years. I have a term insurance of Rs 50 lakh and I am planning to take another policy for Rs 50-75 lakh.
A: While it is a good thing that you are already planning your retirement 15 years in advance, at the same time you need to make sure that during this period if something happens, the dependents and your family is well taken care of. So I think it�s a good decision to go for a term plan and also make sure there it adequately covers your risk cover.
As far as your investments are concerned, since you have a time horizon of 15 years you can look at an asset class like equity. Always remember that when you are investing for 15 years, that too on a monthly basis, you don�t have to worry too much about the current market condition. Yes it is true that when you are investor it always worries you as to what is happening in the market, but with the time horizon of 15 years, especially when you are following a disciplined approach, I don�t think you need to worry too much about the market condition today. The one benefit of investing regularly is that you benefit from averaging.
There are three or four funds that you can look at for investment of Rs 25,000. You can look at a multicap fund called HDFC Equity where you can invest Rs 7000 or you can look at one large cap fund which is ICICI Focused Bluechip where you can invest Rs 6000. You can invest Rs 6000 in IDFC Premier Equity which is a mid cap fund and Reliance Equity Opportunity Fund you can invest another Rs 6000 here.
The reason why I am recommending four funds is that in future, if you are able to invest more money, add more money to these funds don�t add too many funds. While it is alright that you want to start with Rs 25000, I am sure over a period of time you will be able to increase this amount. So as and when it�s possible, keep adding to this so it will help you in terms of building up a corpus. If I assume again annualize return of 12%, Rs 25000 per month investment can get you a corpus of around Rs 1.25 crore but if you extend your time horizon by another five years it can be around Rs 2.4 crore. But if you want to achieve this target of Rs 5 crore in 15 years time then I think you need to invest around Rs 75,000-80,000 per month.
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