Here's a guide to piecemeal approach for wealth creation

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest a lump sum of Rs 40 lakh with a time horizon of 10-15 years timeframe. His goal is wealth creation. What's the advice you would give?

A: If I have understood correctly, he wishes to invest Rs 40 lakh for a period of 10-15 years. The purpose is to accumulate wealth over a period of time and he understands the relationship between high risk and high reward.

Q: There is also a little bit about insurance background. His sum assured is Rs 10 lakh and he pays a premium of Rs 30,000 yearly. It's an insurance scheme from Tata AIG.

A: I am happy that he understands the need to take risk to get high rewards. So I would suggest a two step process. He could park this entire Rs 40 lakh into a liquid fund offered by a mutual fund, say for example in HDFC Cash Management Fund Treasury Advantage Plan . This invests entirely into debt. So at this moment, the money will be invested 100% into debt.

From here, the second step is to instruct HDFC Mutual Fund to transfer Rs 9,000 everyday into an equity scheme of the same fund house, for example, HDFC Equity Fund . In this form, over a period of two years, the entire Rs 40 lakh will get invested into equities. I assume that the markets will be more stable by the end of two years from now. So in the volatile period, he has entered into equities.

Say if it's in the tenth year from now that the money is required, from 2nd to 9 years, remain invested into equities. Just evaluate the performance of the fund. If he is not happy, he can switch to another well performing fund. But remain in equities from 2nd year to the 9th year.

After the 9th year, when his goal is one year away, start withdrawing money out of equity and parking into areas which are not volatile in nature. In this way, he is protecting the gains that made over the period of 9 years. In this case, one can capture the benefits of the equity market, and at the same time, enter into a piecemeal method and try and capture benefit out of the volatility in the next two years from now.

Q: Should all Rs 40 lakh be invested in only one type of an HDFC Equity Fund or it doesn't make sense that in HDFC as well you could recommend two or three funds to break-up his equity portfolio?

A: That's a very valid question. But if I look at the HDFC Equity Fund by itself, it's a multi-cap fund. We are not concentrating on any particular segment or any particular capitalization. So the fund manager has the liberty to actually invest across the industry. It's more of a diversified kind of a portfolio.

Secondly, each fund in itself also has a number of stocks. If they have about 50 companies that they are investing into, that's well enough a diversification.

For the sake of convenience, and it's anyway is an STP, everyday the money will get transferred. Lot of transactions will happen at the end of one year.

If you look at the statement, there will be 240 transactions because it's 20 working days a month, so there will be 240 transactions in one statement and then multiply it by two or three schemes, it just becomes too much of paperwork.