Investing For A Kitty Of Crore

Q. I’m a newcomer and I wish to explore the market and take benefit from it. I want to invest Rs 5000-10000 through SIP in MF/Bond. So please guide me to achieve my goal and give me a list of MFs which can provide growth along with tax benefits that suits me best. My aim is to buy a house in the next 5-8 years and to get a lump sum of around Rs 1 crore after 15-20 years. Also for my pension or retirement, please suggest any available plan that may give me around Rs 30,000-40,000 p.m.

- Pradeepta Kumar Pradhan, Bhubaneswar

A. Pradeepta, it is very well for us to want ‘a crore of  rupees’, but did you ever imagine that a crore of rupees 20 years down the line will be as good as having Rs 30 lakh today? So did you mean that you would be satisfied with Rs 1 crore after 20 years or did you mean that you wanted to have the same buying power as Rs 1 crore has today? You see, inflation has the funny ability to devalue the value of your money as time passes by. To purchase the same goods that you can buy with Rs 1 crore today, you would likely need about Rs 3.2 crore after 20 years! Anyways, I am suggesting an investment plan for both the amounts here.

Target Amount    Rs 1 crore
SIP in Equity        Rs 8,400
SIP in Debt        Rs 5,600
Total SIP        Rs 14,000

I have suggested a moderate portfolio for you, as you have mentioned that you are a newcomer to investing.  Some of my assumptions in this calculation are an inflation rate of 6 per cent per annum; a long term return from equity of 12 per cent compounded per annum, and a long term return from debt of 6 per cent per annum.

You would also like to save for buying a house after about 5 years. Assuming that an apartment may cost you Rs 25 lakh today, with inflation it could cost you around Rs 35 lakh by the time you are ready. You will need a down payment of 20 per cent and the balance can be funded by a home loan. This 20 per cent target amounts to Rs 7 lakh. Hence, here’s how you can achieve it:
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Target Amount    Rs 7 lakh
SIP in Equity        Rs 5,220
SIP in Debt        Rs 3,480
Total SIP        Rs 8,700

Here, I have assumed a slightly higher return from equity of 15 per cent per annum, as this is over a 5 year period, when such returns can still be expected.

Which funds? For equity, I would suggest a predominantly large cap diversified equity fund such as DSP Blackrock Top 100 and HDFC Top 200. For debt, I would suggest a bank fixed deposit (if your tax rate is low) or a short term income plan such as Templeton Short Term Income Plan. (Do watch this space, for suggestions on debt, from time to time!)

For your home savings plan, I would suggest that you choose a single plan, a hybrid fund consisting of both equity and debt such as the HDFC Prudence Fund. Though the allocation may not exactly be the same as 60:40, it would be close to that and acceptable.