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Financial freedom: 'Keep your lifestyle in check'
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December 07, 2007

Want to achieve financial freedom at an early age? Do you know what qualities you will need if you have to achieve your financial dreams?

Does discipline play a role in deciding if your financial health is sound or not? How can you create wealth by investing your funds for the long term?

In a chat with Get Ahead readers on December 5, financial planning expert Vetapalem Sridhar answered these and several other queries related to financial planning and freedom for you and your family.

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

Part I: 5 principles of successful financial planning


shally asked, Hello Mr Sridhar, I am 24 year old, earning 10,000 per month staying with my family. Planning to get married after 1 or 2 years. I havnt saved anything yet. Sir "HOW TO START" saving money, in what form & where to invest to get maximum benefits? I am patient by nature. Regards.

Vetapalem Sridhar answers, Hi Shally, If u plan to gt married shortly u should put the money into a a Bank FD. U will need this money when u get married. Post marriage if u r still left with the money then u should consider investing it into Mutual Funds then.


sheetal asked, Hello Mr. Sridhar can you suggest me some good short term debt funds?

Vetapalem Sridhar answers, Go for Fixed Maturity Plan of Mutual Funds. These r similar to Bank FDs. They r of 3 mth, 6 mth, 1 yrs, 18 mth, 2 yrs,etc. Here u can expect to make slightly better returns than Bank FDs.


abhay rai asked, sir kindly give your valuable suggesstion on how to achieve financial freedom at early stage when i am earning 2.5lac per annum?

Vetapalem Sridhar answers, 1. Spend less than u earn 2. Invest savings regularly. Learn about investing. If horizon of investing is long (more than 5 yrs) invest into equity based investments. 3. Keep ur lifestyle in check. As ur income goes up ur lifestyle should not rise at a faster pace than income growth. 4. Do take up expensive debt (Personal Loan or credit card)


Ranjana asked, Hi!!! My salary is 38K/month. Within one year i want to purchase a house on loan at budget 20-25 lacs. I want to systematically invest around 10K/month. Please advice how and where to invest for wealth growth? Thanks alot in advance sir. Must reply.

Vetapalem Sridhar answers, To get a loan of 20-25 lacs u would roughly need to have 4-5 Lacs for down payment. If u already do not have this amount, then I would suggest u to collect the savings into a Bank FD.


Amit asked, I am thirty Years of Age. I have monthly income of 60000. My savings are 15000 after paying car and home loan .My investment are as follows till today. 1. 25 lakh term loan Life insurance 2. 7 Lakh Medical coverage by Company. 3. Mutual Funds 40000 in Reliance [Get Quote] Growth, Sundaram BNP Paribas select Mid CAP. ICICI [Get Quote] Securities and BNP SUNDARAM Energy Thematic Fund. 4.PPF 120000. Do you see my portfolio is correct? I want to Prepay my debt in three years of 1500000 (Home + CAR LOAN). And want to have a education policy for my children. What should i do?

Vetapalem Sridhar answers, Hi Amit, Prepay ur car loan. Keep the Housing loan running, as u can claim tax benefits on the EMI that u pay. Stop putting money into PPF. Contribute minimum amt to PPF to keep it running. Increase investments into MFs from ur savings potential. Ur portfolio needs restructuring. It is better to avoid sector funds. Also u do not have a strong core portf. Look at Reliance Vision and HDFC [Get Quote] Growth to add stability to ur portf.


dssekar asked, Hi Sridhar, I m 23 yrs old & earning Rs 20000/m. I can save upto Rs 13000/m. I m planning 2 invest in shares. Pls suggest me what r all the things I have to do for entering in2 share market?

Vetapalem Sridhar answers, U will first need to open a broking and a demat account to enter into the share market. Alternatively u can invest into equities thro Mutual Funds.


deepti asked, hi, this is deepti. am 26 yr old earning 50k per month and husband 28 earning 50k. i get almost complete tax exemption as i have taken house loan before marriage and pay 22k per month towards it and since we stay in diff town frm where house is we pay rent of 9k. however my husband pays around 15 k as tax per month and also he's never till today have planned abt investments or savings. i want him to take up anther house loan so tht he can save up on tax.would u suggest taking anther housing loan or investing in SIP at this juncture? how much do we have to invest towards life insurance as i pay 13k per year and he pays 7k per year towards LIC [Get Quote]?

Vetapalem Sridhar answers, Hi Deepti, Investing into another house just to save tax may not be such a gud idea. A lot of things need to be evaluated. If u give that house on rent u will have to include the rental income into ur husband's income for calc of tax. It may be a better option to invest into a ELSS scheme for ur husband to get tax benefit of upto 1L u/s 80C. Also u should take up a TERM INSURANCE (u have not mentioned which insurance product u hold). If ur husband is not disciplined about saving it may make sense to do a SIP into a MF for him.


madhuboy asked, Sir if i invest 5000 for a period of 20 yrs what will be my returns?

Vetapalem Sridhar answers, At around 14-15% annualised return it should grow to around 50L in 20 yrs time.


piyal asked, Suppose I have invested in a mutual fund for three years. After 3 years I could not redeem due to some reason. will the money still be considered as invested and grow or it will just lie idle with the fund?

Vetapalem Sridhar answers, Hi Piyal, the money would continue to grow in the Mutual Fund as long as u do not redeem it.


Kiran asked, My investment ratio is 80:20% in MF:Shares. But I have no Life insurance. Do u think one requires it; And/Or Can investing that part of money in MF that will give me same returns down the line?

Vetapalem Sridhar answers, Life Insurance is required if 1. U have any uncovered Liabilities 2. If there r dependents on ur income.

Life Insurance should be taken to the extent that it provides required support to the dependants on ur income in case something happens to u. If u do not need Life Insurance, investing the Money into a MF would definitely make more sense.


vinod asked, Age 30, how much should i save monthly from now onwards so that at an age of 40 i shall be able to get a monthly returns of 25000/- as of today @40 yrs, Considering the inflation?

Vetapalem Sridhar answers, If u start investing 25K pm at age 30. Each yr if u increase this invested ampunt by 10%. So in the yr u r 40 u invest around 64K pm. At age 40 u should have built 1.09 crore, asssuming that the money is growing at 15% annualised rate. From this amount if u start withdrawing money, inflation adjusted at the rate of 25K in today's terms assuming cost of living is rising at 7% p.a. U can continue to withdraw the money till ur age 89 yrs. An assumption taken is that the financial surplus built continues to grow at 14% for 10 yrs from ur age 40, and then this return rate reduces by 1% each 10 yrs and stabilises at 10% rate.


ram asked, Hello Sir, I am 27yr old with saving potential of 25000 Rs/month. Please advise how to allocate to get maximum returns? Should I focus on short term gains from share market or long term gains from good mutual funds like UTI infrastructure,SBI [Get Quote] Magnum,etc. Please advice?

Vetapalem Sridhar answers, Hi Ram, Generally most people are not able to consistently make money thro short term trading in equities. The maximum returns can be earned thro being a focussed long term investor into equities. This u can do either by direct investments into Shares or take the Mutual Fund route. U can read thro the following to understand how equity delivers better returns over the long run. http://www.rediff.com/getahead/2007/sep/14stocks.htm.


tanmay asked, Hello Sridhar - I am 30 yrs and earn 50K per month and my outgo on investments (FD, RD, Term Insurance, Pension Plan and endowment plan) is almost 30K per month with 3K in SIP apart from expenses. Any recommendations to balance this portfolio?

Vetapalem Sridhar answers, Dear Tanmay, Stop putting money in a Pension Plan and the Endowment plans as soon as 3 yrs r over. They do not help u build wealth over the long run. At best they will give u return close to the rate of inflation. U need to seriously look at adding Diversified Equity Mutual Funds to ur investments.


Vetapalem Sridhar says, I've run out of time. Will catch up again sometime soon...


Part I: 5 principles of successful financial planning

Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at vetapalems@rediffmail.com.


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