Hemant Rustagi, CEO, Wiseinvest Advisors is of the view that the more time you give equity the better results you get and power of compounding also works overtime. He recommends HDFC Equity, ICICI Focus Blue-chip and IDFC Premier Equity.
For the short term, invest in debt funds especially because the way yield is moving up. If someone is investing for a short term his recommendation would be again looking at ultra short-term like 3 to 6 months.
Below is an edited transcript of the interview on CNBC-TV18. Also watch the attached video.
Q: Investor can invest Rs 25000 per month. How should he allocate his money? His time horizon is about 20 years and he has also indicated a goal of Rs 5 crore.
A: For a time horizon of 20 years obviously the focus has to be on equity funds. Yes equity as an asset class tends to be volatile in short and medium term but the fact is when you are investing on a systematic basis through SIP (Systematic Investment Plan) the volatility is automatically taken care of. So for Rs 25000 I recommend 3 funds to him.
One is HDFC equity where he can invest around Rs 9000 which is a multi cap fund, then ICICI focus blue-chip which is a pure large cap fund he can invest Rs 8000 and then he can also take a quality midcap fund which is IDFC premier equity. Here again he can invest around Rs 8000. This will be a good mix of large cap, midcap and a multi cap fund.
Here again if I assume a return of 12% over this time horizon of 20 years he can actually build a corpse of around Rs 2.27 crore. But since investors target is around Rs 5 crore and if he wants to achieve that during this time horizon then he will have to invest around Rs 55000 per month. With Rs 25000 he can only achieve Rs 2.27 crore.
My advise to him is that if he has only Rs 25000 to invest per month he should start the process, and not delay because equity works well. The more time you give equity the better results you get and power of compounding also works overtime. So begin with Rs 25000, as and when it is possible for him to add more amount he should invest more money.
Q: Any advise to investors on what are the kind of mutual funds they can invest in to take advantage of high yields?
A: The thing is that in debt funds especially because the way we have seen yield moving up the key factor is the time horizon. If someone is investing for a short term my recommendation would be again looking at ultra short-term. If the time horizon is 3-6 months there investors can get good return. 6 months to 1 year look at short term fund but if it is for a longer term then maybe they can look at fixed maturity plans. At this stage if investors are not very sure about their time horizon I think they should avoid income fund at least.