Q. I am 23. I started working in an IT company in August. My gross monthly salary is ₹20,000 and the net monthly salary is ₹15,000. I am still left with ₹10,000 after all the expenses. I have some knowledge about stock markets and mutual funds. So, I want to ask where and how much should I invest? and how much risk should I take?
Vishal Ghodake
A. How much risk you take depends on how much you want to preserve your capital and when you need the money back. If you have over 7 or 8 years’ time for your money to grow, then stock markets and equity funds will work. If your time frame is less than, say, 3 years, then it won’t. If it somewhere in between then use a combination of equity mutual funds and options such as FDs, PPF and so on.
If your time frame is long then consider investing about 50% of your salary in equity index funds such as Nifty 50, Nifty 500 and Nifty Midcap 150.
Invest the remaining 50% in traditional options such as PPF, EPF and FDs. You can slowly increase exposure to equity index funds. Do this for a year or two and start observing stock market and then see if you can take the volatility in shares directly. If so, start with stocks of bluechip companies and slowly extend your research to other companies by reading annual reports of companies and news events.
Q. I am 23 now and want to invest ₹10,000 a month. I am looking for less riskier options and moderate fluctuations. Which mutual fund/saving schemes suit me?
Rakesh
A. If your time frame is over 5 years, then consider about 30-40% in equity index funds such as the Nifty 50 and the rest in hybrid balanced advantage funds and ultra short debt funds. Do this only if you have first started investing in traditional options such as PPF or have some FD in quality banks. That will give you a foundation.
Q. I am a senior citizen. I having been investing in mutual funds for 8 years now. About a couple of years before I invested substantial funds in some regular growth funds of SBI. I got good returns too. But I have a very serious doubt about the method in which these type of funds are managed. From the description of the fund’s name, I had concluded that they will reinvest income from the operations, viz. dividends, profits from occasional sales of some shares to realise increase in price of individual company’s shares ( which is part of the particular fund category) and perhaps realisation of bonus shares, and allot me more shares which can give me more income from my investment. But nothing of that sort happened.
No additional shares have been given since inception. So, what do the mutual fund companies do with my money ? Make money for themselves ?
I did not get any income since two-and-half years. I had to sell some shares to take out some money.
The sad part of it is that I couldn’t get any reply for my query from either MF representative or the SBI staff.
V.H. SUBRAMONEY
A. I am afraid you may be confusing mutual funds with shares. Mutual funds pool all the money they get from investors like you and invest them in shares or bonds. If the shares grow, your NAV grows. If the shares fall, your NAV falls. There is no promise of dividend or bonus. Everything they receive from the underlying shares they invest in, is ultimately reflected in your NAV. Mutual funds are trusts and there is nothing they can do with your money. We suggest you read more about mutual funds here: https://www.mutualfundssahihai.com
/en/what-is-a-mutual-fund And importantly, please make sure whether it is mutual fund or insurance, you understand the product you are investing in. It is best not to invest if the product structure is not clear to you.
Q. I am an ardent reader of The Hindu for the past 10 years. I am 40 years old and working in a PSU. My monthly net salary is ₹75,000. I have no savings as much of it went towards medical expenses to start a family on my own. Now, I have two boys aged 2 years and 1. Could you please suggest a financial action plan for my children, myself and family. There are no dependents now.
Paramesh
A. Please ensure you have a term insurance (pure life cover) that is roughly 8 times your annual income plus covering any loans you may have. This will be helpful for your family if any untoward incident happens. Start running PPF for your children for 15 years and simultaneously invest 50% of your savings in equity mutual funds – index funds such as Nifty 50, Nifty Midcap 150 and Nifty 500. Do not try to be lured by sales pitch on multiple mutual funds. Keep it simple.
As savings increases, you can consider investing more in these index funds so that you have 60-70% in equity index funds. Use SIP and do not react to market ups and downs and stop SIPs. SIP does not guarantee high returns but will provide discipline to your investment. This is necessary given that you are starting late. Get a financial plan done with a fee-based planner to chart goals in terms of education and retirement and how much savings will be needed for these goals.
(The adviser is Co-founder, Primeinvestor.in)
