Do you think you should sell your mutual funds or stocks when the markets tumble? Or should you consider this as an opportunity to buy more?

Which are the good mutual funds to buy now for the long term? Are there any good mutual fund ELSS schemes that will not only help you make money but also save your tax?

In a chat with Get Ahead readers on March 18, 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.

shyamk@nseit.co.in asked, shyam, age 26, I have been investing 1000 per month in HDFC [Get Quote] Growth,SBI [Get Quote] Magnum umbrella contra ,Fidelity Equity,Reliance vision,icici pru dynamic,sundaram select midcap,tata pure equity. Is this portfolio ok? Suggest I am looking forward to accumulate 50 lakh in 10 yrs. suggest some MF which can improve my chances.Thanx in ADV.

Vetapalem Sridhar answers, Dear Shyam, the portf is reasonably gud. U already have a lot of funds. U may look at rationalising ur portf to six funds and also including an additional mid-small cap fund like JM Emerging Leaders or Sundaram SMILE into it. U would need to do atleast a 15K SIP p.m. for the next 10 yrs to accumulate around 50L.

kumar asked, I am running in 55 yrs. which short term investment is advisable for me? Can I go ulip plan of UTI FOR 10 YRS?

Vetapalem Sridhar answers, Mr.Kumar, 10 yrs is not a short term investment. If u r serious about a 10 yr tenure of investment the recent fall in the mkts is a great opportunity for u. It would make a lot of sense to invest money into diversified equity Mutual Funds like SBI Magnum Equity, HDFC Growth, Reliance Vision etc. If u remain invested for 10 yrs u can make reasonably gud returns, inspite of volatility in the short run.

barun asked, hi, i am barun age 26, My investment are 4000/- through SIP to reliance diversified power sector fund-growth, 12000/- one time investmnet in Reliance natural resources [Get Quote]. now i am planning to invest 6000/- extra in other mutual funds through SIP. please suggest me some mutual fund which can improve my protfolio. Is it safe to invest in reliance diversified power sector fund(for 2year horizon)?

Vetapalem Sridhar answers, Hi Barun. In addition to the risk of equity investment, ur investment also carries the specific risk of the power sector. If this specific sector does not do well for any specific reason, u would be bearing the risk. Having said that, Indian power sector has a long way to go and there is tremendous potential for companies in this sector to grow. Hence if u have a really long term horizon u can make gud returns here. When u build a portf it is always advisable to first pick large cap diversified funds like HDFC Growth, Reliance Vision, SBI magnum Equity etc which would form part of ur core portfolio. Only then does it make sense to add other funds like mid cap, small cap etc. And finally if u wish to have more exposure to a specific sector, then it makes sense to invest into a thematic/sector fund.

Sarita asked, Hi Sridhar, can the gift given to my parents in cash, would be exempted from taxable income from my income?

Vetapalem Sridhar answers, Hi Sarita, u can only gift cash from ur post tax money, i.e. the part of income left with u after u have paid tax on it. U should shift ur focus from saving tax to creating wealth. Nobody can grow wealthy by just saving tax. To grow wealthy, u have to make ur money work for u. So try to learn and find info about how to invest and make ur money grow rather than finding innovative ways to save on tax.

pooja asked, Hello Sir, I have 1 Lakh. I would like to do a FD for 1 year. Can you pls. suggest me a good bank with which i can do the FD? Also pls. let me know that other requirements for the same.. Thanks in advance.

Vetapalem Sridhar answers, Dear Pooja, any public sector bank like a SBI, PNB etc or any reputed private bank like HDFC, ICICI [Get Quote] etc should be good for an FD. Do not do a FD in any co-operative bank even though they may offer slightly higher interest rates. It is best to do a FD where u already have an account.

vsnurdy asked, hai again, what are the less risky mutual funds u suggest and how can i know more about mutual funds as i'm new to this. i want to invest around 30k pa in MF. i want 2 go for short term as well as long term as i have some financial commitments.please suggest on these...

Vetapalem Sridhar answers, Risk is more a determinant of the type of investment that a fund is making. Equity investment carries more risk than debt. Also mid cap stocks have higher risk than large cap stocks. So if u r looking at less risk MFs, then probably u should look at investing into debt. But then due to lower risk the expected return too would be low. In equity there is potential for gud returns, but then u need to have a long term horizon (5 yrs or more). If u hav short term financial commitment, it would make sense to keep the money in a bank FD.

madhu1 asked, Hi, I have reserved about 30K for investment in tax saving ELSS this week. But seeing the trend in the stock market, I am afraid whether I should invest in ELSS or opt for some other safe investment? Pl. advise.

Vetapalem Sridhar answers, Dear Madhu, emotions always guide a person to make irrational financial decisions. It is said that to make money in equities u have to simply BUY LOW and SELL HIGH. When mkts fall, u should realise that u r getting an opportunity to buy equities at LOWER levels. But then it is our Emotions which interfere and we are not able to take a rational decision. Also equities have the risk of volatility, like what we have witnessed in the last few weeks. If we have a relatively long term horizon, then this short term volatility will not affect us. As this volatility does not affect us we have a capacity to bear Risk (i.e. volatility - ups and downs of mkt). This in turn enables us to make higher returns in the long run.

Anand asked, Hi Sridhar, I am 28 yrs old, married with 1 kid 4 months old. Current monthly salary is around Rs 42K and after my EMIs (16,000) and expenses, I am able to save 20K per month. I would like to save for my child's future and retirement to build a corpus? My EMIs would be over in another 15 months time. Can you give me a method to go about it?

Vetapalem Sridhar answers, Hi Anand. Does ur wife work too? Cos otherwise it means that ur cost of living is only 6K p.m. If both work then both of u should get adequate TERM Insurance. Start investing that part of money which u can keep invested for atleast 5 yrs or more into equity mutual funds thro a SIP. U can look at options like HDFC Growth, Reliance Vision, SBI Midcap, Franklin Flexicap, Sundaram SMILE, etc. About investing for child u can read thro the following link: Investing for children, A Slide Show, click NEXT to read thro.

jigardesai asked, hi i have invested around 3 lakhs in the direct equity market and i have reliance ind., lnt, bhel, icici bank, rel, rcapital, ntpc, rpl, pfc, power grid,rcom, tata steel and dlf but now i am in loss around 50000 /- and speculations are like that market will crash more upto 12000 even 10000 should i exti and buy them later or what should i do? thanks in advance.

Vetapalem Sridhar answers, I have one Q for u. Can u say with certainity that mkts will go down to 12K levels? Wat is the gaurantee that if u sell stocks now that u will be able buy them again at lower levels? When u had invested in the first place u should have been aware of the risk of equities. U hold gud companies, most of which r bluechip stocks. I can tell u one thing with certainty. If u hold onto the above stocks for long enough (maybe 3-5 yrs), u will make reasonably gud returns on the amt of investment that u have made. But then for this u would have to bear the risk of volatility. What u wish to do is totally ur personal decision, as I have no view on the same.

amit asked, Hi, I am amit, I have taken a loan from ICICI for proprty purchase. Loan is in joint name of me & my brother while i am the first applicant. The property is also in joint name of us. I want to know that under sec 80C who is eligible to get tax rebate on principle amount paid? is it myself, my brother or both sharing 50-50 or any other percentage & how to avail this?

Vetapalem Sridhar answers, Hi Amit. Both can claim benefits individually upto 1L each for principal component u/s 80C. Also if the property is self occupied, then both can claim tax benefit on interest paid of upto 1.5L individually. So in case of self occupied property both together can claim benefits of upto 5L in total. Tax benefits can be claimed on only that amt actually paid as EMI by both individually from their incomes.

ushap asked, Hi Sridhar, I want to invest in ELSS for tax saving this week. Would you suggest good funds for the same. Thanks.

Vetapalem Sridhar answers, Sundaram Tax Saver, Principal Tax Savings Fund and HDFC Tax Saver r gud funds. Though I do not think that NFOs r a gud idea, JM is launching a new ELSS fund called JM Tax Gain Fund. The only reason that this fund appears in my watchlist is because it is going to be managed by Mr.Sandip Sabharwal (ex-fund manager of SBI Tax Gain).

kan asked, Is HDFC Prudence a good fund to invest a lumpsum of around 4L with a 3-5 year time frame at this point of time?

Vetapalem Sridhar answers, It has been an excellently managed fund. In current circumstances it is definitely a gud time to invest with a 3-5 yrs horizon. Having said that I prefer to manage asset allocation by investing in pure debt and pure equity funds separately rather than go thro a balanced fund.

hai asked, hi sridhar, market is tumbling too much & i'm investing in mf through sips. do u suggest to continue or can be stopped as the gain is 10-12% after investing 1 year?

Vetapalem Sridhar answers, Through ur experience I hope u learnt the advantage of SIP investing. Instead of stopping ur SIP, does it not make sense to invest more money (thro lumpsum investments) into the existing funds? U can then learn and enjoy the benefits when the mkts go up eventually.

Rajiv asked, Hi I am a 25 year old Software engineer in a IT Company. Been in the IT industry for the last 2 years. Just want to know what best to go for in order to have the maxm tax savings. mutual funds or insurance..please advice?

Vetapalem Sridhar answers, An investment option should be selected to meet a specific objective. Let me explain. The objective of mutual fund investing is for returns and that of insurance is for providing financial support to ur depandants in case something happens to u. First decide on the primary objective and the evaluate the products. U will save equal tax if u invest equal amts in either of the options.

rohitkulkarni asked, Hi Sridhar, I have completed MBA last year , earning Rs. 50000 per month. I have to invest Rs. 1 lakh 80cc.Please suggest me where shud i invest considering US is going to recession,inflation at 5.2 , ruppes at 40.8 , sensex at 14,000, uncertinity in financial market, expecting commodity buble within two or three months ? shud i invest Rs. one lakh in ELSS this year as i am very young and can take risk for investment.if possible plz suggetst for whether shud i take hme loan or not? Thanks in advance.

Vetapalem Sridhar answers, U should invest money in a ELSS scheme at this mkt level. It seems u do keep track of happenings in the economy. Gud. There is a possibility (cannot say with certainty) that property prices may correct further. Salaries in IT sector too may not rise as they have been rising in the past. Unless u are already getting a gud deal for a house, u can take ur time on the housing loan thing.

Part II: Tomorrow

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