Q. I am 22 years old and I just earned my first monthly salary of 30k. I am looking for investment avenues where I can put 30% of my earnings. I am ready to undertake risk for another 5 years or so, considering I do not yet have a family to provide for. Could you offer some advice?
Pranav Prakash
Bhavana Acharya replies: Congratulations! To begin with, start to build an emergency corpus equivalent to at least 6 months’ worth of expenses; use part of your planned monthly investment until you complete accumulating the necessary amount. Top this up if your expenses change.
For your investments, first list out the purposes towards which you intend to save – this will help you get the time-frame you have for investment and therefore the investment options. Always allocate between equity and debt-based investments as it helps keep return fluctuations under control which ultimately improves long-term returns. Longer the time-frame, the more you can allocate to higher-risk higher-return equity and vice versa.
In equity, your options are equity funds and direct stocks. Avoid direct stock investing until you gain some market and investing experience. In debt, options are debt funds, FDs from banks and NBFCs, corporate and government bonds, and PPF (you are likely to also have EPF). Bank FDs are useful for your emergency corpus explained above. Else, if you are a tax-payer, debt funds are the most tax-efficient option. For a time-frame of about 5 years, you cannot go too much in equity (needs at least 5-7 years minimum). Allocate about 50% to equity funds and the remaining to debt. Increase equity if time-frame is longer. In equity, large-cap index funds are essential. You can also consider slightly more aggressive funds from categories such as flexi-cap or focused funds. Avoid very high risk mid-cap, small-cap or multicap categories as your time-frame does not allow it – you are also new to markets, so understanding the way these segments behave might take some time. In debt funds, use short duration or floating rate funds. Ensure that these funds invest only in top-rated debt instruments.
Q. I am 22 and I am getting ₹2,000 per month. I don’t want to risk this in stocks as it is uncertain. What are the other avenues I can use for this money?
Sivaesh Thooran
A. If you do not wish to take risk, the safest option are fixed deposits from banks. If you want to earn a slightly higher return, you can consider FDs from small finance banks and large, stable NBFCs but do note that there is some risk in these. You can also consider post office deposits and schemes such as the NSC.
Q. I am 21 years’ old. I would like to do my MBA in 1-2 years, most probably in a foreign university. I have a job right now. But the money from my job won’t be enough for an MBA program. Since an MBA is very costly and I don’t want to burden my parents, can you please tell me ways to do money investment in shares and MFs which can help me fund this? How am I supposed to invest in these? I don’t know anything about investing and share markets. Can you please elaborate on how to invest somewhere and make money?
Pravina Menon
Aarati Krishnan replies: There is really no investment option that can promise you high returns within 1 or 2 years. While shares or equity mutual funds can deliver high returns over short periods, it is impossible to predict when such phases will come about. On the other hand, both shares and equity funds do carry a fairly high risk of a capital loss. Should markets fall, you could easily lose 20-30% of your capital within a 1-2 year time-frame. A good instance of this in the last 5 years when stock prices rose very sharply and have also corrected steeply in the last few months. To earn good returns from equity investments, you need to invest and wait for a 7 to 10-year time-frame, so that you can reap the rewards of steady profit growth in companies that you own, which eventually translates into stock price gains. We also urge you not to be attracted to unregulated investment options like cryptocurrencies in a bid to make quick money. Cryptos have proved to extremely volatile assets. The Indian government, too, is yet to frame laws that will decide if owning them is legal or illegal. RBI has already cautioned that cryptos cannot be considered legal tender. If you wish to save money towards your education over the 1-2 years the most prudent options to invest in would be short-term debt mutual funds or fixed deposits at this juncture. Consider the option of funding your higher degree with a loan.
Q. I opened a PPF Account with SBI while I was in service and I am maintaining it for the last 35 years. I retired from regular service in the year 2012 and the account is extended each time for a five-year block. I make a lumpsum investment in the account every financial year for the 80C benefit and take non-refundable advances from the account occasionally. The present block of 5-year extension expires by March 2022. I am now 65 years of age. Can I extend it further? Is a shorter period of renewal possible?
Jacob Varghese
A. Your strategy of using the Public Provident Fund has a long-term savings vehicle is a good one. In a falling interest scenario, the PPF has remained an avenue that offers reasonably high interest rates with current rates at 7.1%. The fact that the deposit, interest and final maturity proceeds on PPF are all tax-free makes this vehicle even more attractive. If you do not need the money and can continue with the deposits, we suggest that you extend your PPF by another five years so that your money can continue to compound at a high rate in this safe vehicle. This will require you to submit Form H requesting a continuance of the account to the bank. Unfortunately, the PPF does not allow you to extend your account in blocks that are shorter than 5 years.
(Bhavana Acharya is co-founder, PrimeInvestor.in)
