Plan investments based on your life's goals

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For an investor who can set aside Rs 15000 per month and Rs 10 lakh as lumpsum, Roongta suggests that he should invest into equity for at least 15 years to achieve a long term wealth creation goal.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: If a person can invest Rs 15,000 per month and Rs 10 lakh as lumpsum, where should he invest in?

A: The person should go through a process of financial planning. Technically, investments are made after you identify your life's goals. You have identified that wealth creation is something that you want to achieve; there are no specific goals. But once you have identified certain other aspects of your life, it is easier to suggest an investment vehicle, which you can use to park your money for whatever purposes.

Coming back to the query, I would want to broaden the investor's horizon a little bit. For instance, when you invest into equities over a longer period, it does not mean that you are taking a lot of risk by itself. This is not about markets going up and down, that is more of a short-term phenomenon. In this case, since it is a long-term wealth creation goal, I would suggest that you need to have assets, which are more aggressive in nature. A time period of 15 years is good and is in your advantage.

What I could suggest to you is Rs 15,000 that you wish to invest, you can choose quality stocks where you buy very good companies, which are fundamentally large and strong. I don't think there is much of risk in that perspective for a 15 year period. Else if you are not comfortable going through that research and selecting stocks yourself, use a mutual fund route, I can suggest two funds to you, one is an ICICI Focussed Bluechip Fund and the other is SBI Magnum Emerging Business Fund .

For the lumpsum part, there are two choices, one is that you can buy quality non-convertible debentures, which are again listed on the exchange giving good double-triggered returns even today. Tax-free bonds are available, which give you about 8.5% returns for over the next 15 years. Else there is another option; since you have a long-term horizon, you could choose equities again but invest it in a form in which you do not invest one lumpsum completely today. 

Use a systematic transfer plan; it is an STP against a very popular term SIP. In STP, you give out the money directly to the mutual fund today itself. Suppose in this case, I suggest HDFC Mutual Fund ' you give out the entire Rs 10 lakh to the liquid scheme of HDFC Mutual Fund, the HDFC Cash Management Fund , this fund invests completely to debt; there is no equity whatsoever in that portfolio. 

From here you set up an STP, a Systematic Transfer Plan for money to be systematically transferred into equity over a period of next five years. You have to designate the scheme. I can suggest two schemes, which are HDFC Equity Fund and an HDFC Index Fund ; Rs 10,000 per month into both these schemes will enable money to come into equities over a period of next five years. Then just leave it as it is, it will grow to become whatever corpus in the next 15 years from now.