Investment options
Q. I am 23 years old and started my career in a fintech organisation last year. I earn ₹50,000 per month excluding my PF contribution (₹3,200). My monthly expenditure is about ₹18,000. I want to start my own venture in about 5-8 years’ time. I also have retirement savings in mind. Please suggest suitable investment options.
Manisha Jayson
A. If you have plans to quit employment and start your own venture, apart from investing towards the initial capital contribution to your venture, it would also be important to protect yourself from emergencies and set up a corpus to take care of your living expenses during the break (until your venture turns a profit). This is apart from investing towards goals such as retirement. From your query, it appears that you can save about ₹32,000 every month. As a first step, if you don’t have health insurance offered by your employer, we suggest you take one so that medical emergencies don’t dent your savings.
A premium of ₹5,000 a year can fetch you a reasonable cover. We also urge you to set up an emergency fund equal to nine months’ living expenses, which would be ₹1.62 lakh in your case. This money should be in safe options such as fixed deposits with a leading bank. If you have money idling in your savings account or elsewhere, earmark it towards this emergency fund. If you don’t, we suggest that you invest ₹5,000 each month until you get to this number. Thereafter, this money can go into your retirement plan. To get to a sizeable corpus, aggressive hybrid equity funds or multicap equity funds would be your best bet.
An 8-year time frame may be essential to earn a reasonable return from these vehicles. If you are conservative, consider three aggressive hybrid equity funds with a good 10-year record for your SIPs. Assuming you make an 8% compounded return, that will give you a corpus of about ₹33 lakh in 8 years’ time. If you have a higher risk appetite, you can invest in three multi-cap equity funds with a good 10-year record. At an assumed 10% return, this will get you to a corpus of about ₹37 lakh at the end of 8 years. How much of this money you would like to invest in the venture and how much you would like to use for your income needs would be up to you. To make a start on your retirement plan, you must open a PPF and NPS account and start contributing whatever savings you have left after the above investments, towards your retirement. Future savings from increases in income and surpluses from your venture must also go into your retirement investments.
For high returns
Q. I am 24 and earn ₹10 lakh a year. I invest ₹1.5 lakh in PPF and spend ₹1.5 lakh towards personal expenses. That leaves me with ₹7 lakh per annum to invest. I'm ready to take extreme risks. I'm already investing in stocks and mutual funds. Can you guide me on other investment options which can yield high returns? Or is to okay to park the entire money in stocks and mutual funds?
Naren Babu
A. To start with, do set up an emergency fund made up of about 9 months’ living expenses. In your case, that would amount to about ₹1.12 lakh, which you need to hold in fixed deposits at a leading bank. If you have dependants, you should buy a pure term insurance plan to take care of them in your absence. If you are not covered by your employer, it is also essential to get a health insurance plan so that your savings don’t take a hit if you have medical emergencies.
After you fund these necessities, you can decide how much of your surpluses you can invest in equity and fixed income. This allocation must be based on your risk appetite as well as financial need. Stocks or equity mutual funds would not be suitable for any financial need which is likely to crop up in less than 5 years’ time. If you have such goals, invest in short-duration debt funds towards such goals. For goals that will crop up in 5-7 years, use aggressive hybrid equity funds that invest in a mix of debt and equity. For goals beyond 7 years, you can rely on stocks and pure equity funds. Continue with your PPF investments as a part of your fixed income allocation.
