orried about your money, and what to do with it?

Investment expert Uma Shashikant answers all your investment-related questions.

I have a five-year old daughter.

I want to invest my money in such a way that I get Rs 10 lakh (Rs 1 million) from my savings/ investments. This is for my daughter's higher studies and marriage around 15 to 18 years down the road.

I would also like to get about Rs 15,000 per month as a post retirement income, which should be around 20 years later.

I need to take medical insurance. I now have a Rs 5 lakh (Rs 500,000) life insurance cover.

I do invest in stocks and fixed deposits, but I am unable to get the right mix to fulfill my future needs.

- Raphael J T

If you can get an 8% compounded return on your investment, a saving of Rs 3,000 per month for 15 years will be enough to meet your Rs 1 million target. Start a systematic investment plan in a child care fund that invests in equity as well as debt.

As for your retirement, I presume Rs 15,000 is in today's terms. If inflation is 4%, and you retire after 20 years, it will be about Rs 32,000 per month. If you want to create a pool whose interest you will consume for, say, 20 years after retirement, you will need to accumulate Rs 4 million in the next 20 years.

You will need this pool to pay off Rs 40,000 per year for you. You will need a little less money if you do not mind consuming part of the principal amount in your retirement years.

At an 8% return, this is Rs 7,000 per month of investment for every month over 20 years.

Can you put aside Rs 10,000 per month for these two goals?

If you find it tough, consider investing in an equity fund, where your returns will be higher and, therefore, the amount you need to save is lower.

You can look at a 75:25 ratio of investment in equity and debt. Rs 5,000 per month should be adequate if you are able to target a return of 10%. Save regularly every month and you should be fine.

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I recently took a voluntary retirement from the Army.

I got Rs 15 lakh (Rs 1.5 million).

I have parked Rs 6 lakh (Rs 6,00,000) in a monthly income scheme and Rs 3 lakh (Rs 3,00,000) in a fixed deposit (only 5.5% return).

I have been reading a lot about mutual funds, but am not sure what kind of funds to choose.

Could you kindly guide me as to how I could get decent returns, preferably on a monthly or quarterly basis.

- Rakesh Kumar Gupta

Since you have a good amount of money in a monthly income scheme already, you have a steady source of income.

You can choose to invest in monthly income schemes of mutual funds, where not more than 30% is invested in equity (the rest is in debt) to generate income.

There is no assurance of a regular dividend, but many of them do make decent and regular payouts.

Invest about 60% of your funds in such schemes. Invest about 10% of your money in equity funds that focus on dividend yield. These funds tend to generate regular income.

The balance 30% might have to remain in the bank as a fixed deposit because you may like the stability in the return, even if it is low.

Make sure you chose more than one fund (about three is a good idea) and review how they are doing at least once every three months (every quarter). Do not be tempted to invest in an all-equity fund, because the risks could be high, and they may not generate the regular income that you are seeking.

If you think you have the risk appetite, allocate about 10% to an equity fund, review after a quarter before you make any changes.

Mutual funds are offered by financial advisors across cities, and there should be one in your neightbourhood in whose shop you will find the forms as well as the literature.

Several banks also distribute mutual funds. Check with your bank.

I earn a gross of Rs 25,000 every month.

I have invested in Franklin Templeton's mutual funds, namely the Prima and Bluechip funds.

I have also invested in the share market, mostly via IPOs.

Do you think my portfolio is balanced?

Do you think I should invest in a pension plan? Can you suggest some?

- P Mullur

You have not mentioned your age.

If you have a long term horizon, say 10 years or more, you are perfectly fine with equity. It is good to spread your mutual fund investments across two to three products, to be able to diversify and also benefit from alternate strategies of fund managers.

A pension plan could bring some tax benefits and could be worth considering. Wait to see what the current Budget (which will be announced on February 28) has to say about new pension schemes, rules, etc, before you make a choice.

This is a new market, and new products are expected to be launched.

IPOs are risky if you do not know the company or its prospects. Be sure you invest in companies with good track record.

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I am a software engineer and generally invest in NSCs and PPF.

I want to use my money in a better way as the saving account does not give much interest. It is the same case with fixed deposits.

With the market at its peak, is this the right time to invest in shares or mutual funds? Should I wait? Please tell me the other options.

- Himanshu Mehandiratta

It might be a good idea to begin by investing small amounts in an equity fund, through a systematic investment plan.

A SIP is like having an recurring account with a mutual fund. You invest regularly in the fund and don't put in all your money at one go. Since your investments will be spread out over the months, you need not worry about the 'right time' to invest, or the risk of having entered the markets at a the wrong time.

It is important to have at least a five to seven year investment horizon if you want to invest in equity markets.

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I am 35-year old professional with a wife and child.

Over the last six months, I have begun to invest around Rs 20,000 per month in equity funds.

I also have a few insurance policies and am covered to around Rs 7 lakh (Rs 700,000). Should I stop them and start investing totally in mutual funds?

- Priya K

It is important that your insurance policies cover your family, in the unfortunate event that you are no longer there. From that perspective, you are likely to be under-insured at Rs 7 lakh (Rs 7,00,000). Speak to an insurance agent and make sure that your cover is adequate.

View your investment like a well balanced choice of assets. It is not necessary that the best performing investment must attract all your savings. Right from gold, to property, fixed deposits, mutual funds, insurance and equity, each has its place in your allocation. 

Build your portfolio by making sure you have all the components. Allocate savings to each one of them and choose the best products under each category. For example, if your gold investment is in jewellery, it is a less efficient choice than pure gold bars that banks sell today. Once you take a portfolio view of your investments, you should be fine.

• Why jewellery is a bad investment
• Should you buy gold

To view Uma's earlier piece, read Smart Investment Strategies.

Got a question for Uma? Please write to us!