Can mutual funds help young people retire early? How should you plan your mutual fund investments so that you can achieve financial freedom by the time you turn 50?

Which mutual funds can help you meet your targets? What are the risks involved in investing in mutual funds? What action can you take to reduce these risks?

In a chat with Get Ahead readers on May 14, financial planning expert Vetapalem Sridhar answered these and several other queries related to mutual fund investments, financial planning and how to achieve financial freedom for you and your family.

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

Part II: 'I strongly prefer ELSS over ULIP'

Manoj Gahiwal asked, Which is the best mutual fund to invest?

Vetapalem Sridhar answers, Dear Manoj, u can look at the past and say that X fund is the best performer. It is not possible to know before hand which fund will be a best performer in future. If this were possible then each person would invest only in this best fund and all other funds would be out of business. U should look at building a portf of 4-6 diversified funds with different philosophies, for eg: Large Cap, Value oriented, Mid cap, aggressive opportunity, etc. U can read thro the following link where I hv explained some factors that investors should evaluate before investing into MFs. How to select a good mutual fund. A Slide Show, click NEXT to read thro.

Kunal asked, Hi Sridhar, I hav following SIPs Rs 1000 each in Reliance [Get Quote] RSF & JM Emerging, Rs 500 in magnum comma & DWS Investement opportunities. Is my portfolio ok? Can i get atleast 3l after 3 yrs.

Vetapalem Sridhar answers, The funds picked r gud, but then ur portf becomes very aggressive. U need to include 2 large cap MFs like HDFC [Get Quote] Growth, Reliance Vision, Sundaram Select Focus etc which would add stability to ur portf. 3L is a pretty steep expectation considering u r doing a 3K mthly SIP in all. U would need to make an annualized 60% returns on ur investment to accumulate 3L in 3 yrs. A more realistic expectation would be around 1.5L in 3 yrs time.

sanjay asked, Hi, I am planning to sell my flat (3.5yr old) at round 60 lac and buy another one around 40 lac and from remaining 20 lac I will pay my current home loan dues (15 lac) and 2.5 lac car loan. Does this plan makes sense? Please comment. (My age is 29 and I am working as S\w engr in MNC).

Vetapalem Sridhar answers, A plan is made to meet a certain objective. Ur objective is not very clear. If u plan to do the above only to reduce debt, then it may not be the smartest move. But if u r planning to shift to a place closer to ur work, then switching a house maybe a gud option. As u r young u can afford to shoulder the burden of a housing loan.

san123 asked, Hi, I have started an SIP in good MF for 6k/month and 1k/month in Pension plan. I want to collect 1Cr for my retirement. My age is 29 and I am planning to retire at 50. Please sugguest What additional investment I need to do to generate 1 Cr taking inflation into a\c at age of 50.

Vetapalem Sridhar answers, Hi! How did u arrive at a figure of 1 Cr? At ur age 50, the value of 1 cr would be equal to between 23L (at 7% inflation) and 28L (at 6% inflation). The amt u need at ur age 50 to achieve Financial Freedom would depend on ur lifestyle. If u continue with ur current 7K investment each mth till ur age 50 u should roughly be able to accumulate 1 Cr.

itsme asked, hei sridhar, i am 30 yrs, married, having a daughter living in mumbai. my sal is 35,000 pm can u suggest some finincial planning so that i can invest for a house, my daughters education and retirnment

Vetapalem Sridhar answers, It is a very general Q. So there cannot be a specific answer to it. U need to build funds for ur various objectives in life. Over longer horizons, equities have a potential to deliver higher returns. So u should consider building funds for long term objectives thro equity oriented investments. A SIP in a MF should be a preferred way. Also Take up an adequate TERM Insurance Cover. Keep around 3-5 months of regular expenses in ur bank. To invest for ur daughter plz read thro the following link, Investing for children. A Slide Show, click NEXT to read thro.

vgpal asked, Dear Sridhar, I'm intrested in starting an SIP of Rs 5000 p.m. in HDFC growth fund directly without any agent. I have a internet banking account with HDFC & ICICI [Get Quote]. I'm intrested in online transaction. How to start about it. If in future I want to invest in other MFs how can I do it online. In short how to start investing online in MFs. Though I have understood the concept of MFs, I don't have any knowledge how to start investing in it. I want to know the starting pocedure. Thank You.

Vetapalem Sridhar answers, U will have to visit the mutual fund office to submit a physical cheque along with a form for the first time. Once the mutual fund folio number is generated, u can apply for an online PIN by filling up a simple form and mentioning ur folio number in it. Once u receive ur online PIN, u can register online on the Mutual Fund website. Once this is done u can do all future transactions online. This process u will have to follow with each fund house separately. There r a few fund houses which still do not offer online facilities.

rc asked, Please suggest a mix say 5-6 of equity diversified and equity-oriented balanced funds for good returns keeping a long term horizon

Vetapalem Sridhar answers, Among large caps u can look at HDFC Growth, Reliance Vision, Sundaram Select Foucs and SBI [Get Quote] Equity. Among aggressive funds u can look at SBI Midcap, JM Emerging Leaders Fund, Sundaram SMILE, Kotak Opportunities.

anakinskywalker asked, how safe are MFs in financial planning for long term

Vetapalem Sridhar answers, MFs play a very critical role in enabling a person to build wealth over the long term, which would help in meeting objectives in life of a person. So it plays a very important role in a Financial Plan.

Suman asked, I have just started to invest in mutual funds, via the SIP route. I've started investing 10K per month - divided into four funds (each of 2.5K each) - Franklin Templeton Prima Plus, DSML TIGER Fund, Reliance Vison Fund & Birla Sunlife Frontline Equity Fund. What are the funds that I'll need to add to my existing portfolio in the long run (I'm planning to add more funds with adding 5K to my monthly SIP investment every 6 months)? Please guide me with it.

Vetapalem Sridhar answers, U can look at adding one aggressive to a well built portf. Pick from among SBI Midcap, JM Emerging leaders fund and Sundaram SMILE. Do not add more number of funds. Increase the allocation in the existing funds itself. U should periodically review funds in ur portf and replace and substantial under-performers.

arif asked, Can we invest in Sundaram BNP (BFSI) mutual fund and AIG World Gold Mutual fund. Please suggest.

Vetapalem Sridhar answers, Choice of fund is upto u. Generally it is better idea to avoid new funds. It makes more sense to invest into existing funds with a proven track record.

ajay_sk3 asked, is it advisable to invest in MFs, equities with the money from personal loan?

Vetapalem Sridhar answers, Generally personal loans r available at a interest rate in excess of 15%. In the long run u should expect 15% annualised returns from equities. And there is risk in equities in the short run. So investing into equities from borrowed money does not look like a smart thing to do.

sushant asked, sir, are we having sound mutual fund industry to cope up with market & sub prime turmoils ?

Vetapalem Sridhar answers, Mutual Fund industry is a highly regulated place. There is a lot of transparency as far as operations r concerned. Also MFs do periodically disclose where they invest. So by studying this info it is upto an investor if s/he wants to invest in a fund. As MFs invest in the mkt, and if there is fall in mkts, MFs will give negative returns. Mkts r dependent on the strength of the economy. India is expected to be among the best performing economy over the next few years. So there will still be money willing to enter our mkts. So we can expect a reasonable return provided we have a 4-5 yrs timeframe for our investment.

sundar asked, i have now a matured kisan vikas patra of value 40 thousand, this i want to put for a longterm sure deposit, low risk where shall i invest with tax benefits

Vetapalem Sridhar answers, U can invest into a 5 yrs FD which qualified for a tx benefit u/s 80C with a nationalised bank.

a asked, 1. Which are good ELSS Funds for Tax saving purpose? 2. SIP is said to be the best way of investment and it is said that we can get good returns in the long term when we invest thru SIP. Suppose we started a SIP in a good fund (as per todays ratings). My question is whether one should keep on investing blindly keeping faith that it will give good returns or we will have to review the performance of the fund ? How can a common investor will know that whether the SIP should be continued or discontinued. 3. How good is SBI Magnum Contra Fund?

Vetapalem Sridhar answers, 1. U can look at funds like Sundaram Tax Saver, DSP ML Tax Saver and Principal tax savings fund. 2. Returns are more a function of the amount of time u remain invested into equities rather than on the method of investing into equities. It is very difficult to time the mkts. Pick a fund with a strong past track record with a gud fund mgmt team in place. In a SIP u can continue to invest for a long time without bothering about its performance. Once sizeable funds r built into the fund then u may need to review ur strategy. 3. It is a gud fund with a strong track record.

askbalancer asked, Good a/noon sir! Do arbitrage funds have a risk attached? or like gilt funds they r entirely risk free?

Vetapalem Sridhar answers, Arbitrage is a risk free profit. Hence such funds r very safe. Pl go and do some reading on GILT funds. A gilt fund has high risk. They r a type of long term debt fund whose value is affected by interest rate movement. When interest rate rises, the NAV of long term debt funds fall. Hence they carry risk. What u r referring to is that for a GILT fund there is no risk of default of the paper.

Part II: 'I strongly prefer ELSS over ULIP'

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