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Should I invest in PPF or SIP? Answers to your personal finance queries

A glass jar full of coins and plant growing through it with some coins and plant leaves. Concept of savings, interest, fixed deposits, pension, social security cheque.

A glass jar full of coins and plant growing through it with some coins and plant leaves. Concept of savings, interest, fixed deposits, pension, social security cheque.  

Readers can send in queries on personal finance and investing to moneywise@thehindu.co.in

Q. I am a 34-year-old central government employee with a net salary of ₹35,000. I could not save earlier but now I have no obligation. I'm not married and don’t intend to get married. How much money should I be saving and where should I invest my money to get a guaranteed monthly income of ₹2 lakh (from 2046) once I retire at 60?

Shekhar S.

A. It is heartening to note that you are eager to save for retirement the moment you have some surplus. If we assume ₹25,000 a month of expenses for you, and a 5% inflation, after 26 years (when your reach 60), this expense would be about ₹89,000 per month. This will go up with inflation every year. For example, in your 80th year, if we assume the same rate of inflation, the monthly expense would be ₹2.24 lakh. If we consider that (assuming a lifespan until 80), you will need about ₹2 crore as corpus at the age of 60. If you save about ₹17,000 a month and your investments earn around 9%, you should be able to comfortably build your retirement corpus.

Start with whatever surplus you have and increase it slowly as salary goes up. Consider a 60:40 mix of quality multi-cap equity funds and 40% through your government NPS as well as low-risk, short-term debt funds. Closer to retirement, shift the equity funds to safer debt options such as deposits and post office schemes, depending on what safe options are available then.

Q. I am 23 and work for an MNC. I earn about ₹20,000 after deductions. Over the last six months, I traded in stock markets and lost ₹60,000. Now, I am thinking of trading in options through short selling. But I need a minimum capital of ₹1 lakh. I don't have this sum as I lost all my savings in the past six months. So, I'm thinking of taking a bank loan of ₹1 lakh to do short selling. Is my idea of taking loan to do trading worthy or not?

Mohith

A.The answer is — avoid taking a loan to enter derivatives. This decision should not change, whether the loan is available at cheap rates or otherwise. Having lost money, don’t compound the risk it by taking a loan to make up the loss. It will likely push you into a debt trap. There are no sustainable short cuts to investing. Start by saving small sums in a few equity mutual funds every month. They can even be index funds. Add some mid and small-cap funds for some aggression, if you like that. Have a horizon of not less than 5 years.

If you want more excitement, allocate 10-15% of your total savings to stocks by having a mix of large companies and some well-known mid-sized companies — not for trading but for long-term investing.

Think long-term by following news on companies and reading up their annual reports. This will open your interest to the world of equity.

Like the famous economist Paul Samuelson said, “Investing should be more like watching paint dry or watching grass grow.”

Q. I am 27. I want the best plans to invest ₹12,000 per month. I have heard about PPF and SIP. Please advise which option can get me good returns in 10 years among the two.

Vinayak Gopal

A. It need not be either, or. It can be a combination. PPF will provide you with a safe avenue to invest as it is a government scheme but will give deposit-like returns. SIP is a mode of investing monthly in mutual funds. It can be used to invest in a high-risk and volatile asset class like equity.

A combination of both will give you some stability and returns. Invest in both with a 60% allocation to equity funds and rest in PPF. Seek proper guidance and hold for the long term.

(The author is co-founder, Primeinvestor.in)

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Printable version | Apr 10, 2020 11:48:23 AM | https://www.thehindu.com/business/Industry/ask-us/article30831579.ece

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