00:00 [MUSIC PLAYING]
00:03 Hi.
00:08 Thanks so much for joining in.
00:10 You're watching the Mutual Fund Show on NDTV Profit,
00:12 and my name is Alex Matthew.
00:14 Often, this show and the ideas that
00:17 emerge for the topics on this show are driven by real life.
00:22 And incidentally, a colleague of mine
00:24 was speaking to me the other day and said
00:26 that she wanted to plan for her newborn child.
00:31 And of course, the child was born just about a month,
00:34 month and a half back.
00:35 But she thinks that if she gets a head
00:37 start on the investments that she makes now,
00:41 it will hold her and her child in good stead 15, 17,
00:45 20 years down the line.
00:46 And so to that end, I said, why don't I do a show?
00:49 And I speak to experts about what
00:52 they would suggest the right approach is
00:54 to which mutual fund schemes to invest in, and perhaps also
00:57 which instruments outside of mutual funds
01:00 to use to supplement an overarching portfolio.
01:03 If at all, there is a certain amount
01:05 of risk that needs to be taken on behalf of your child,
01:09 what is that level of risk?
01:11 I'm joined today by Kirtan Shah, MD of Credence Family Office,
01:16 as well as Arnab Pandya, founder of MoneyEdu School.
01:19 Thank you so much to the both of you for taking the time.
01:22 And as always, it's a pleasure having you on the show.
01:25 Kirtan, I guess the first question is, when do you start?
01:28 My colleague, as I mentioned, her child
01:31 is just about a month, month and a half old.
01:34 Is this the right time?
01:36 Alex, thanks so much for having me on the show.
01:38 I think your colleague is correct when
01:40 she feels that she should start as early as possible.
01:43 Because the earlier you start and more of the time
01:46 you really have in terms of accumulation,
01:49 you really will be able to compound your money much faster
01:53 or the other way around might have to save much lower
01:57 to reach the same goal.
01:58 So to give you an example, if your colleague starts right now
02:01 and assume that she typically wants
02:03 to plan for a child's post-graduation, which
02:07 will happen when the child is 21 years,
02:10 and probably she's looking at accumulating a crore,
02:14 and you assume that the returns that we'll
02:16 be able to generate is 5%, then she might only
02:20 have to do 9,600 of SIP every month
02:23 to be able to reach one crore at the age of 21.
02:26 But let's say if she does not start now
02:29 and starts a little later, or somebody else's example
02:32 who's not started now and the child is already
02:33 five years old, now you would only
02:35 have 16 years to accumulate one crore, which
02:39 is at the age of 21.
02:40 You will have to increase your SIP, which
02:43 was in the first case 9,600 to 18,300 now.
02:46 And let's say if you started 10 years when the child is 10
02:49 year old and you only have 11 years to go to accumulate
02:52 a crore, you will have to do 38,000 rupees of SIP.
02:55 So I'm completely with your friend
02:56 when you say that should she start right now?
03:00 The answer is definitely a yes, because the more time
03:02 she really has to achieve that particular goal,
03:05 she's going to be able to do it at a much smaller SIP.
03:09 I mean, just to put things in perspective,
03:11 you would have to save four times the amount
03:14 if you start 10 years late per month.
03:18 And that's quite significant if you think about it.
03:20 And ultimately, I think people tend
03:22 to forget, Kirtan, that they have to save for themselves
03:26 as well as their children.
03:27 So the later you push it, you'd have
03:29 to sacrifice on your own savings.
03:32 Is that right?
03:33 Is that the right way to look at it, Arnab?
03:37 Definitely.
03:38 Because ultimately, every individual or a family
03:42 has a limited amount of money.
03:44 Now, you have multiple goals for your own retirement,
03:48 for your own spending.
03:49 Plus, when you have responsibilities of the child,
03:53 it's also the child's education and all those things.
03:56 So if you are going to allocate more to a certain goal--
04:01 in this case, the child's goal, which
04:05 is going to be, say, two or three or even four times
04:07 of what you would have normally contributed
04:10 if you had started early--
04:11 you will have to compromise on some of your own goals.
04:14 And the most common thing which happens at this stage
04:18 is that the retirement goal is the one
04:21 where the cut comes in.
04:22 Because that, for most people, is still
04:26 somewhere in the future.
04:27 So they say that instead of, say,
04:29 putting $20,000 away for retirement,
04:31 I will put in only $5,000 or $2,000
04:33 and allocate the remaining for the child's amount.
04:37 So that retirement goal then becomes difficult to achieve
04:42 because the implications are twofold.
04:44 One is a lesser amount is going into a long-term goal.
04:48 The second part is a goal like a return one
04:51 is also a very huge one in terms of both absolute numbers.
04:56 So achieving that larger number also
04:59 requires a larger and a consistent allocation
05:02 over a longer period of time.
05:03 So the implications can be quite severe.
05:07 The numbers will obviously show you
05:09 the difference which is there of starting late.
05:11 But the earlier you start, the earlier you've thought of this.
05:14 That is more important.
05:16 It will help you to start early.
05:18 The other aspect is how much is appropriate.
05:21 And I think that was laid out in the first illustration
05:26 that Kirtan pointed out, that if you
05:28 have to achieve a one-crore level 21 years from now
05:33 or 20 years from now at a compounded rate of 12%,
05:38 if you do 9,600 rupees per month starting now,
05:42 then that's something that you can achieve.
05:44 But Kirtan, deciding that you need one crore, that one crore
05:48 is a relatively arbitrary number.
05:50 How do you decide how much you need?
05:53 I think, Alex, that's a very pertinent question.
05:55 And that would, in my opinion, depend on two, three things.
05:59 The first is you will have to understand how much time do
06:02 you really have for that particular goal.
06:06 And for that reason, you will have
06:07 to have some clarity of what are you really planning for.
06:11 So to give you an example, let's take two cases.
06:14 Case number one, when you are trying
06:16 to plan for the child's education,
06:19 rather the graduation, which is abroad.
06:21 And case two, when you are trying
06:23 to plan for your probably accumulating
06:26 for your child's medical studies.
06:28 Now, both of these things are going
06:30 to be very differently planned.
06:32 Because there are two elements here.
06:34 First, when you're planning for graduation,
06:36 you probably are looking at a situation
06:38 where you need that money at the end of the 18th year.
06:41 But when you're planning for post-graduation,
06:42 probably you need this money at the end
06:44 of the 21st, 22nd year.
06:46 So that's the first differentiating factor.
06:48 And the second that comes in is what is the appropriate amount
06:52 and how do you decide that.
06:54 So let's say, for example, we are talking about the first
06:57 case here, where we are looking at trying to accumulate,
07:00 let's say, hypothetically, for my child's medical studies
07:06 here in India.
07:07 Now, if you're looking at doing medical studies here in India
07:11 and you assume that you are looking at the cost that
07:15 is today at 25 lakhs, which means
07:18 if I have to get my child to do medical education here
07:21 in India, today is 25 lakhs.
07:24 This cost is not going to be constant when you actually
07:27 are going to face the goal.
07:29 So the first thing that you have to add here
07:31 is try and understand that if 25 lakh rupees is the cost today,
07:35 how much will this cost really become
07:38 when the goal is due at 18 or 21 years of age.
07:43 So the first thing you will have to understand
07:45 is what is the current cost and that inflate it
07:49 by a minimum of 6% for you to be able to achieve
07:53 at the actual cost when the goal really arises.
07:57 Now, there are two things that you have to understand here.
07:59 6% is a very, very, very nominal rate
08:03 at which you are inflating this number
08:06 is because education inflation in India
08:09 is growing at a faster pace than the CPI inflation.
08:13 So do not do anything less than 6%,
08:15 but you will have to do at least 6% and higher.
08:18 Now, if you've understood that probably, let's say,
08:20 18 years later, the 25 lakhs that I'm
08:23 willing to spend today at 6% will become 71 lakhs,
08:28 then you know that the goal that you really want to achieve
08:31 is not 25 lakhs, but 71 lakhs because the cost
08:35 of the education, which is today 25 lakhs,
08:37 going to become 71 lakhs.
08:39 So now if you want to accumulate 71 lakhs,
08:43 then you understand that you will probably
08:45 have to do an SIP of 10,000 rupees
08:48 if you have 18 years to go and 12% at which you would
08:52 want to grow your assets or probably
08:55 it's a fair expectation at which your assets will grow.
08:57 But remember, if at all you're talking
09:00 about an international education,
09:02 you will have to probably use instead of 6%, a higher number,
09:06 let's say, 8%, 9% because you look at currency depreciation
09:09 also.
09:10 Yeah, and we'll come to maybe making investments
09:12 to protect you from that currency depreciation
09:16 because that's also a possibility to consider.
09:18 But it's a tricky situation, right, Arnab?
09:22 Because you plan for the worst, I guess,
09:24 if you can call it that.
09:26 And then if there's anything that emerges that is different--
09:30 and I'll talk about my own case.
09:31 My dad always hoped that I would do a particular course.
09:35 I didn't end up doing that course.
09:37 And so he essentially transferred the money
09:39 that he'd saved up to me and he said, you invest it
09:41 or you do what you want with it.
09:43 It could happen that you don't utilize the funds
09:45 that you save, but then you can always transfer it later.
09:48 The question I want to ask is, how do you attribute risk
09:52 to an individual that is, say, a few months old?
09:55 You don't know what their nature is going to be down the line.
09:58 But what you do know is that they've got a lot of time
10:01 on their hands.
10:02 So how do you attribute risk when you're investing
10:04 on behalf of somebody?
10:08 No, so what you say is absolutely correct.
10:10 It's not only tricky, it's very difficult also
10:14 because you don't know what is going to happen
10:17 over the next few years.
10:19 Forget, I mean, 15 or 16 years down the line.
10:22 There is one other aspect here which also comes into play,
10:25 which is that normally when it comes to, say, a child's
10:30 education, we think of postgraduate and higher
10:34 studies.
10:34 But at this point of time, if you look at it,
10:38 even school education has become so expensive
10:42 and that is also rising at such a rapid rate
10:45 that in between, it could be that you
10:48 might have to use some of the funds to fund even
10:54 the school education of the child.
10:56 So even that part of the entire child's education life
11:01 needs to be planned out because it should not
11:03 be that you are putting aside money for the longer term,
11:06 but you are in a situation where you have to use it earlier just
11:10 because you don't have additional funds.
11:12 So that is one aspect.
11:14 The other question which you asked
11:15 was with respect to what is the risk
11:18 that you attribute to the child in terms of their ability
11:22 to take risks.
11:23 Now, the way that one needs to look at this
11:26 is that, see, obviously, we don't
11:29 know how the child will behave or what their risk-taking
11:32 ability will be going forward.
11:34 But in this case, what you are doing
11:36 is you are investing on behalf of the child for a goal.
11:39 So you need to take into consideration what is required
11:43 to achieve the goal.
11:45 And since time is one of the factors which
11:48 can help you in this regard, you are in a position
11:52 to at least take a higher amount of risk.
11:55 But the main point here is that when
11:58 you look at goals for a child, and especially when it comes
12:02 to education, one point which is very important
12:06 is that you will need the funds on a certain date.
12:10 That is, if you are, say, going to pay
12:11 the fees of the child in year X, and then at that point of time,
12:16 you will need the funds.
12:17 You cannot say that I can postpone the goal by six months.
12:19 It's non-negotiable, yeah.
12:20 Yes, so which is why for these kind of goals,
12:23 it is always appropriate to have a balanced portfolio.
12:28 And in the initial years, you might have a higher allocation
12:31 to risk, be a little aggressive.
12:33 But at least in the last three to four years,
12:35 before that goal is to be achieved,
12:37 the balance within that portfolio
12:39 has to shift towards debt so that the money is available
12:43 when you actually want.
12:45 Ketan, you want to come in very quickly?
12:46 We have to slip into a very quick break.
12:48 But before that, you've actually laid out
12:50 this in an illustrative term.
12:52 You've broken it up in numbers as well.
12:54 You want to explain that?
12:57 Definitely.
12:57 I mean, so what happens here, Alex,
13:00 is because you've got 18 or 21 years,
13:03 because I'm talking about probably a graduation
13:06 and a post-graduation here.
13:08 What typically happens is if you choose fixed income,
13:12 and you say that you are only going to get 7%
13:15 to achieve probably--
13:17 or you say 10,000 rupees of SIP that you do at 7% at 21 years,
13:21 you will probably only accumulate 56 lakhs.
13:24 But if you do the same in equity at 12%, you will reach a crore.
13:28 So of course, risk will play a very big role
13:32 in what asset class do you choose to invest in,
13:34 and hence how much money you will really
13:36 be able to accumulate, Alex.
13:37 So we've discussed how much risk is appropriate.
13:41 We've discussed how much you need to save.
13:43 We've discussed how much you will probably need.
13:46 But we need to now get into the operative part of it, which
13:50 is where do you invest?
13:51 And if we're talking about mutual fund investments,
13:54 there are a few options in the solution category
13:58 or the solution-oriented mutual fund category,
14:01 which is specifically for children and their requirements.
14:05 Should you go to that route, or should you choose other options?
14:10 Alex, I think I like to split the investor community into two.
14:13 One is sophisticated investor, and another is retail who does
14:16 not have a lot of understanding.
14:18 I think a sophisticated investor can definitely
14:20 give the solution-oriented schemes a pass.
14:23 And I'll tell you why.
14:24 It's because if I have 18, 21 years
14:27 and I'm a sophisticated investor,
14:29 I don't want to be in hybrid schemes for 20, 21 years.
14:33 Also, if you look at the performance of these schemes,
14:36 they are not any superior to the FlexiCap category in the market.
14:40 The TER is also higher versus FlexiCap,
14:42 and hence I end up spending higher expense.
14:45 And the track record is also not very old,
14:47 because these have largely come into picture post-2018.
14:51 But of course, if I'm a retail investor,
14:54 the same thing works in my favor, right?
14:56 Because the scheme is hybrid, it has an asset allocation.
15:01 Because it has a five-year lock-in, it will bring in the discipline.
15:04 In fact, because it is linked to a goal, it can bring me higher discipline.
15:08 And while the performance may be bad or not that great versus a FlexiCap fund,
15:13 the performance in itself is not bad in that sense, right?
15:17 So I think if you are a sophisticated investor,
15:20 you might rather want to stick to equity or similar kind of funds.
15:25 But if you are a retail investor who does not have a lot of understanding,
15:28 I think hybrid or probably solution-oriented fund may work for you.
15:32 I do want to get Arnav's view on this one as well,
15:35 because the sticking points, in my opinion, Arnav,
15:39 are the total expense ratio, which in certain cases, I think,
15:43 crosses that 2% threshold.
15:45 And that means that your scheme needs to work that much harder
15:49 for you to earn a certain amount of money.
15:51 And the other aspect is that five-year lock-in,
15:54 which some might consider a little bit egregious.
15:57 What do you think about that?
16:00 No, so if you look at it, you have to consider the cost
16:03 that you are incurring in terms of the benefits that it's giving you.
16:07 Because for a person who is not able to track the mutual funds on a regular basis,
16:14 going in for creating a portfolio on their own
16:18 would also require them to make changes within that.
16:22 And that has two costs involved in it.
16:25 One is obviously that there will be a tax element which comes into play,
16:29 which doesn't come into play for these kinds of hybrid schemes,
16:32 because whatever the fund manager does,
16:34 it doesn't affect you till you actually sell the units.
16:37 The second thing for these kinds of changes is that
16:41 the extent to which you rebalance and how do you change it,
16:46 that also requires an element of sophistication,
16:48 which a normal investor or a retail investor
16:51 who's not very active in terms of following would find it difficult to do.
16:55 So the convenience element with a little higher cost
16:59 would be bearable if you have no option.
17:02 But if you are able to, say, be,
17:05 I mean, you need not be a retail investor who always goes for the hybrid
17:10 or the solution-oriented option,
17:12 because if you're a retail investor who's comfortable with mutual funds
17:15 and you create a four-five fund portfolio just for this kind of need,
17:21 that is, according to me, more than enough.
17:24 Only thing is that you should be able to follow it closely
17:27 or you should have an advisor who's able to do it and guide you properly
17:31 to make the required rebalancing whenever it's necessary.
17:35 Right.
17:36 Keep them coming back to you on which schemes to choose and what categories
17:40 and how many schemes,
17:41 because I think the other issue is that you might end up having too many.
17:45 I think, again, Alex, if we split these investors into two categories again,
17:53 somebody who's probably largely a retail
17:57 does not understand much about having the right kind of portfolio put together,
18:03 I think they'll be very good having,
18:06 let's say, a couple of multi-cap funds
18:08 and a flexi-cap fund as a combination to come together,
18:11 because it will then give them diversification across large, mid, small also.
18:17 And the flexi-cap category will leave it to the fund manager to decide
18:21 what market cap does the money really need to get allocated to at what time.
18:26 So I think as a retail investor,
18:27 you might as well end up doing a good job doing multi-caps and flexi-caps put together.
18:32 But again, if you are somebody who's comfortable with mutual funds,
18:36 you know how to do it,
18:37 you've done it, you've been doing it for some time,
18:40 building a 4-5 scheme portfolio spread across large, mid, small,
18:45 because it is 18-21 years of investment horizon,
18:48 because I've been talking about it since the start of the show,
18:50 will be a better way for you to look at it,
18:53 but provided you are somebody who understands and are comfortable with mutual funds.
18:56 Okay. Do you have a different opinion here, Arnav?
18:59 How do you construct your portfolio?
19:00 No, so portfolio construction would be on similar lines,
19:05 that, I mean, do not go too much,
19:08 do not spread it out too much because you also have other goals to look at.
19:12 So it should also be in tune with various other goals which you have,
19:16 and I would restrict it to 3-4 funds,
19:20 so that because, I mean, with this kind of portfolio,
19:22 you can cater to your requirements,
19:25 that is the sophisticated investor can cater to the requirements,
19:28 or retail investor who doesn't know all these things,
19:33 a couple of funds should be more than enough,
19:36 because that is where the fund manager is taking care of the team.
19:40 And over a period of time, as you move along and your goal comes near,
19:44 also keep looking at debt options to balance out the portfolio,
19:50 which is where, according to me, dynamic bond funds would be a better choice,
19:55 because here, once again, it's the portfolio manager who's moving between duration
20:00 and taking different kinds of risks, depending on the debt market situation.
20:05 Okay, and we've also put on screen the schemes that you've suggested.
20:08 You've also suggested the Sukanya Samriddhi scheme,
20:11 which is a scheme specifically for the girl child.
20:14 We've got Kirtan's recommendations as well,
20:18 and I asked him to talk about a model portfolio and what you can consider,
20:22 and he's spoken about Nippon Large Cap,
20:23 he's spoken about Kotak Equity Opportunities,
20:26 as well as Quant Mid Cap and SBI Small Cap as the options.
20:30 Kirtan, I've taken the liberty of putting that on the screen.
20:33 We've got a couple of queries from viewers that are related to children,
20:38 and I thought that it would be relevant for me to take that to you on this program.
20:42 The first one is Akshay, and he's a young parent.
20:45 He's 34 years old, and his goal is to save for his child's education.
20:50 And this echoes what we've been talking about.
20:52 He's looking at investing and saving for a period of 10 years,
20:56 and he would like to accumulate as much as 75 lakh rupees for his child's education.
21:01 He's already started investing, Kirtan,
21:04 and he's making SIPs of 5000 rupees in HDFC Balanced Advantage Fund,
21:12 5000 rupees in HDFC Multi Cap Fund,
21:15 10,000 rupees in SBI Blue Chip Fund,
21:18 and 10,000 rupees in Parag Parekh Conservative Hybrid Fund.
21:22 So essentially a combination of BAF as well as Conservative Hybrid
21:27 and a couple of equity schemes.
21:29 Is that the right approach?
21:30 Alex, I think first, if you're looking at accumulating 75 lakhs over the next 10 years,
21:38 then probably his SIP requirement is upwards of 33,000 a month.
21:41 So if he can increase his SIP, that'll be a great thing.
21:44 Second, because you have 10 years,
21:48 I am assuming that you probably might want to increase slightly higher
21:53 on the equity side of it.
21:56 And hence, if I have to choose what you're doing,
21:59 I would rather not do a Conservative Hybrid or a Balanced Advantage
22:04 and move that to probably a Mid Cap or a Large Cap Fund.
22:07 And when I'm one year or 18 months close to my goal,
22:11 I will start allocating or moving that money to fixed income.
22:14 I think that is how I'll be able to maximize because I have 10 years.
22:17 But this is only provided you have a slightly better risk appetite.
22:21 So you can continue with your HDFC Multi Cap, SBI, Blue Chip,
22:24 but you can move your Parag Parag or your HDFC Balance into a large and a Mid Fund.
22:30 Probably reach closer to your goal 12 months, 18 months before the goal,
22:35 start moving that into fixed income.
22:37 I think you'll do a better job.
22:38 Okay, fantastic.
22:39 There's one more question.
22:40 Prachi has got a surplus of 1 lakh rupees.
22:44 And I must point out that she is making investments on an ongoing basis,
22:48 but she's thinking of saving this for her son's education
22:53 as well as wealth creation down the line.
22:56 At this juncture, Arnab, are there any schemes that you would recommend
23:00 for something that would be needed perhaps in six years time or thereabouts?
23:05 So if one is that if the time period is just six years,
23:11 which is not much because it's not a very long time period,
23:15 I would prefer to go in with a hybrid portfolio because of two things.
23:21 One is that already you can see the world over at the moment,
23:25 equity markets are ruling with an element of froth to some extent.
23:32 So the risk, if you are investing just 1 lakh,
23:38 and if you are not going to add to it, then that is slightly higher.
23:43 So I would suggest that she look at a couple of equity-oriented funds,
23:49 one from the Flexicap category, which could be HDFC, Flexicap,
23:53 one from the large and mid-cap space,
23:58 which could be even the Canara, Robeco's emerging blue chip fund.
24:04 And then go on to a slightly hybrid fund also,
24:09 which will could be a balanced advantage fund.
24:14 Sure. All right.
24:15 All right. So I think that answers both of the questions that we had.
24:18 And thank you so much, Arnab, as well as Kirtan, for joining us on this program.
24:22 It's been insightful.
24:23 Viewers, I hope that this benefited you.
24:25 And if you'd like to tell us something,
24:27 or if you've got a question that you'd like to send us,
24:30 you can send it on that number on your screen right now.
24:33 There's lots more coming up over the course of the next few hours.
24:37 So do stay tuned. This is NDTV Profit.
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