Q. Recently, my wife came across a close contact who is advising investing in an agro- company based out of Chennai. These kinds of companies are asking to invest amounts of ₹1 lakh/₹ 2 lakh etc. and are giving guarantees of 15% and above, plus investment back in one year. I have advised her against it because quick money is never true and easy. Is there a way for us to verify the genuineness of such schemes in India?
Prabhu
A. It is a good thing that you are being cautious with such solicitations. When you are investing in a company — the first thing you need to know is whether it is a company registered under the Companies Act and has the right to take deposits. If not, they have no business taking public money. Even if they show proof that they are allowed to take deposits, it best to avoid organisations that take deposits are not NBFCs registered with RBI. This is because when a deposit-taking entity is regulated by RBI, you have a ready regulator to approach when in distress. In the case of companies under the Companies Act 2013, such redressal often goes to a court of law. Next, check the credit rating of the company. For a retail investor taking risks in options with a rating of below AA+ can be risky. If the company or LLP is unable to produce these proofs, it is best avoided.
Q. I am 23. I want to earn in the stock market. I am currently unemployed. My parents gave me ₹60,000. Where and how do I invest?
Yuvraj
A. If you are new to investing, it is good to start at least a small sum in simple and good products like PPF. You can then learn a little more about money-investing by reading. You can consider reading books such as Let’s Talk Money by Monika Halan and You can be rich too: With Goal Based Investing (P.V. Subramanyam and M. Pattabiraman) to know the basics of money and financial planning.
You can go to mutual fund websites to know the basics of mutual funds. Once you understand this a bit, you can then try to read about how stock markets work and how to understand a company’s financials and business prospects. This by itself is a journey. If you want to do trading, it is best that you first understand the vagaries of the stock market before doing so.
Importantly, do not get too swayed by the ‘easy money’ talk that you will hear all around you, once you get into this world. Listen to audios or videos of market tips but know that — like any other journey — the financial journey also takes time to travel. There will be no short cuts that are sustainable.
Q. I am a salaried employee with take-home income of about ₹90,000 a month. I need to invest around ₹4 lakh in my wife’s new business. I have invested around ₹8 lakh in mutual funds with a monthly SIP of ₹20,000 (current value ₹12 lakh). I have around ₹22 lakh in PF, where I can get loan against my contribution. I do not have much savings now. My mutual fund goal is long term only and presently, I do not have any short-term requirement from my mutual funds.
Please suggest whether it is prudent to use my mutual fund corpus or take a loan from PF or take a loan from some commercial banks to fund my wife’s new business.
A. This is a decision that you have to make because it is not so much a matter of numbers and more about your risk appetite and stage in life you are at. But we can help with some pointers. Ideally, it is good to use your own savings to fund new ventures than take a loan since it may take time before the business generates cash flows and you will have to pay the EMI until then.
You can even lend to the business as a loan and even get some interest out of it. This may make it more professional, unless you plan to invest as share capital or partner contribution (if it is a partnership firm).
If you decide to dip into your savings, PF (advance) is an option but it is available only for specific purposes such as education, wedding, buying land etc. and only if you have completed a certain number of years in the organisation. Check these first with your employer. There is also a limit (based on your contribution to PF) on how much you can withdraw. So, ensure you don’t have a problem with it. Taking a loan can be the last resort. See if there are options specifically available for women-run small enterprises. And, make sure the business is viable enough to repay the loan. Let the loan repayment not come at the cost of stopping SIPs.
Q. I am a 21-year-old student. I am currently doing an internship with a stipend of ₹7,500 a month. I want to multiply the funds through investment. But I am very confused about investing, where to invest and how to start. Can you advise me?
A. Start investing in equity index mutual funds with underlying indices such as Nifty 50, Nifty Midcap 150 and Nifty 500. Start reading business newspapers and understanding companies and their numbers. You can then slowly create your own wish list of stocks and see how they perform. Listen to interviews by fund managers and follow blogs of experts such as Aswath Damodaran to understand how to value companies. This will take time and, please remember, the stock market is not a money-making machine even if social media influencers make you feel like it is. It can help build, as much as destroy, wealth.
(The adviser is Co-founder, Primeinvestor.in)
