Q. I am 30 years old and a permanent employee of a PSU. I have been investing ₹15,000 a month for two years now for a long-term goal. I invest ₹10,000 in PPF and ₹5,000 in a mutual fund. I want to know if this is a wise decision or if I should modify my plan? My target is to earn a minimum of ₹50 lakh after 15 years. My risk profile is medium.
A. You have made a good start by investing in simple and transparent products. ₹10,000 in PPF is an ideal option to fulfil your tax deduction need and save regularly in a zero-risk option. You should continue that. But, please be aware that PPF carries floating rate viz. the interest rate can go up or down during the tenure of your investment.
We do not know whether you are investing in equity mutual funds. If so, you have a good combination of equity (through funds) and debt (through PPF). Assuming your PPF earns 7% p.a over your tenure on an average and your mutual funds earn say, 9%, you should be able to reach ₹50 lakh in 15 years. However, as you get some surpluses, consider increasing some amount in mutual funds to better your chances of reaching your goal, with higher return from funds. Keep your equity mutual funds simple — a tax-saving fund (if you need tax deduction) or a simple Nifty-based and Nifty Next 50-based equity fund, some 10% exposure to gold funds or similar exposure to U.S.-based index funds should do. Do this when you increase your MF investments. This diversification will ensure your portfolio swings less during volatile periods.
Q. I am 28 years old and earn ₹28,000 per month. I have opened a PPF account by depositing ₹3,000 per month at an interest rate of 7.9%. But now, this has dropped to 7.1%. Will this affect my maturity amount?
A. Yes, PPF rates and many other small-saving schemes from the government are reviewed every quarter and can be raised or lowered based on the interest rate scenario. In low-interest cycles, there can be times when the PPF does not beat inflation. Hence, it will be good for you to supplement this with other higher returning (with higher risk) products such as equity mutual funds for the long term. Please note they do not give fixed returns and can also slip into losses in the short to medium term. But, they have shown to deliver superior returns over 10 years or more.
Q. I am a 23-year-old post graduate. I will be taking up my first job with an annual package of ₹12 lakh. Can you recommend some long-term investment plans?
A. Congratulations on your first job! This is the right time for you to kick-start your investments and you can do it at a gradual pace. First, take a good, pure term cover on your life if you have dependent parents and your income is vital. Else, take the term cover if/when you marry or settle down. Do not go for any other complex investment-cum- insurance products.
For investments, you can start with zero-risk products such as PPF (please read the query above to know about PPF) that will offer you tax deductions. This can be 50% of your investments. The rest can be in tax-saving mutual funds (if you need tax deduction) or monthly investments in equity mutual funds. If you find it difficult to pick one, simply pick what is called as an index fund — based on the Nifty 50 index. Gradually, you can add some mid-cap funds and international funds based on the U.S. index. This way, you will be able to gradually build a diversified portfolio. You need to do these things: invest regularly, invest only in products you understand and diversify gradually.
( The author is co-founder, Primeinvestor.in)