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Save Rs 3,000, become a crorepati
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May 18, 2007 13:47 IST

Do you know that your money can multiply manifold even if you save just Rs 3,000 per month?

Is it your money's worth to invest in small savings schemes that give you very low rate of interest (which means your money does not really grow, if you take inflation into consideration)? What kind of investments will make your money grow and help you beat inflation?

Should these investments be done to get only good returns or also for the purpose of saving tax?

What should be your ideal investment mix? Should it be spread evenly across equity, mutual fund, real estate and commodities?

In a chat with readers on May 16, Get Ahead money expert Sanjiv Mehta answered these and many more queries related to generating wealth from different asset classes like stocks, mutual funds, real estate, etc.

For those of you who missed the chat, here is the transcript.

Part I -- How to make money in stocks

Sriam asked, Hi, I am a Software professional in the initial days of my career and I want to save for my future needs. Please advise.

sanjiv mehta answers, Better to start as early as possible. Start saving 10-20 per cent of your monthly income in diversified equity funds. Also try to carefully locate an apartment for your own use and take an EMI depending on your budget.

sivag asked, I am 33-year old. When I retire I would like to have Rs one crore as the total money in cash. How much do you think I should invest and what are the ideal avenues to invest to reach my goal?

sanjiv mehta answers, If you save Rs 3,000 every month, and generate on an average 12 per cent returns on it every year, in 30 years -- at the age of 63 -- you will be a crorepati. Stocks, real estate, debt, depending on how the economic cycle moves -- should ideally be a part of your portfolio.

ssarkar asked, Sir, please let me know whether I should continue investing through SIP in the following funds @ Rs 1,000 for 6 years in Prudential Discover, Dynamic, Reliance Growth, HDFC Top 200 and Franklin India Prima?

sanjiv mehta answers, Yes, these are all good funds with impressive track records. However, you have over-diversified with so many mutual funds -- the marginal utility of extra diversification is minimal. Investing in two diversified funds will be more than sufficient.

hemanth asked, Hi, I am Hemanth, 26 years of age and my monthly salary is Rs 25,000. I do my tax planning in consultation with my father. For my tax planning purpose I have invested in: 1. PPF -- Rs 30K 2. Life insurance -- Rs 16K 3. MF -- Rs 24K 4. NSC -- Rs 10K 5. Fixed deposits: Rs15K and some stocks -- Rs 20K. I am looking to maximise my returns on my investments. Please tell me whether the investments I have made are the right ones and what should I add to these to get max returns?

sanjiv mehta answers, Small saving schemes generally are providing very little real returns. Please allocate much more to equity linked saving schemes for taxation purposes since these also qualify under section 80C. Additionally, on maturity also, these investments attract zero taxation.

vijay asked, Sir, can you please tell me what should be right mix of investments say stocks, property, FDs, etc, for a person aged 40 years and if I don't see any major expenses next 10 years?

sanjiv mehta answers, For any portfolio, first the liquidity need should be addressed followed by safety -- safe instruments will be where your return is totally known and does not change with market movements. The rest of the assets should be in yield (returns after tax) enhancing instruments like stocks and real estate. Given the current economic scenario, 50 per cent of the yield enhancement for a 40-year-old could be 30 per cent in stocks, 10 per cent in debt, 5 per cent in commodities and 5 per cent in art if these are accessible.

sunil asked, HDFC Standard Life charges 50 per cent in their Unit Linked Pension Fund. Why such a high charge even when no insurance cover is available?

sanjiv mehta answers,  My recommendation will be to separate protection decision from investment decision. You should buy only term insurance for your protection.

ketki asked, I do save 10 per cent of my income every month. The point is where to invest that money where I can get 9 per cent returns? Please advice.

sanjiv mehta answers, In an economy like what India is currently, earning an average 9 per cent on an annualised basis is not difficult. Since 1993, good diversified stock funds have earned 29 per cent. Also, like in a one day cricket match, you do not have to make 6 runs in every over. In some years, you will make 30 per cent and in some much lower -- however, a 9 per cent average is not difficult.

hari asked, Good afternoon Sanjiv. I have taken a personal loan from HDFC Bank at 18 per cent and invested the same in real estates in Hyderabad. Is it worth it to do like this?

sanjiv mehta answers, 18 per cent appears to be on the higher side -- therefore selection becomes important. Do you expect such a rate of appreciation over the next few years? That is the question you should be grappling with.

ranju asked, Is it prudent to invest money in mutual funds? I belong to the service class.

sanjiv mehta answers, Yes very much so. Indian mutual funds have performed admirably well for the last 14 years. Selection though has to be careful with track record and the present management and their philosophy going forward being the criteria.

santhosh asked, We are a working couple. I am interested to know if it is not that bad to run the house on a slightly deficit economy (that is by taking loans rather than using the cash in hand) as some people suggest? Also, I would like to travel around the world. Is there anything particular I need to plan financially for this lifetime ambition of mine?

sanjiv mehta answers, Buying home with loans is fine if all other principles are followed. Travelling is a good aim. Like any other goal, you just have to estimate the approximate amount of money and timing. Working backwards, you will easily be able to calculate the monthly amount to be saved.

kala asked, For safe investments with high returns which one do you suggest: NSC, flexi bonds, bank deposits or in gold?

sanjiv mehta answers, None of these, since they have very low real returns. As mentioned in this chat, with 3 principles, you can generate higher returns at minimal risk by employing diverse asset classes like stocks, real estate, debt, structured products, commodities, art and derivatives.

sanjiv mehta says, It was very enjoyable talking to you all. Hope that it was helpful, looking forwward to another chat soon.

Part I -- How to make money in stocks
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