Q. I recently passed out of college and will soon start on my first job with a salary of ₹18,000 p.m. I don't have any specific goal right now, but it will be a source of strength if I am able to build up a good bank balance in my struggling years. Please advise on investment instruments I must opt for and as to how much I should invest.
Nishant Gupta
A. It is creditable that you are thinking of saving and investing even before you receive your first pay cheque. You should try to save 15-20% of your pay to begin with and improve on that proportion as your income rises. Do check if your employer will be deducting 10% of your salary towards the Employee Provident Fund contributions. If they will, that is one source of automatic savings which will earn tax-free interest and will accumulate until retirement. Try to ensure that you never disturb your EPF balance through withdrawals throughout your career.
Out of your first few pay cheques, try and build an emergency fund amounting to 6-9 months’ living expenses. If you spend about ₹10,000 per month, you need to have ₹90,000 in this fund, to see you through emergencies such as ill health, interrupted pay or a job loss. It is best to invest this money in a recurring/fixed deposit with a large, well-known bank.
Once you are done with this, you can open a Public Provident Fund account with the post office or any leading bank where you can start making yearly contributions. Though you are not in the taxable income bracket currently, PPF contributions of up to ₹1.5 lakh a year will earn you a tax exemption under section 80C of the Income Tax Act once your income increases sufficiently to fall in the taxable slab.
While these are safe investments that will help you protect capital, equity investments are your best bet to earn an inflation beating return in the long run. Start a monthly SIP in a multi-cap equity fund with a good track record. If you don’t know how to choose one, invest in a Nifty50 index fund.
Q. I am 22 years old and intend to start investing soon. However, I do not possess enough knowledge about the Indian financial markets. What are some good resources (books, podcasts etc.) that can help me get educated?
Siddhant Gupta
A. Reading the financial papers daily can get you to a good start on understanding personal finance. Books such as Let’s Talk Money by Monika Halan, Retire Rich by P.V. Subramaniam and Value Investing and Behavioural Finance by Parag Parikh explain markets and investing with an Indian context. Mutual funds and stock exchanges periodically conduct investor awareness programmes that you can attend. You can also enrol in investors’ associations in your State to network with knowledgeable people.
Q. I am a student of class 10. I want to know how I can invest my money in a productive way. I also want to know about what is Sensex30, Nifty50 and Nifty 100; what do these graphs show? Please suggest some books which can help me learn about the markets.
Aman Yadav
A. It is really very inspiring to see young people display such a keen interest in saving and investing. If you don’t already have a bank account, you must get your parent/guardian to open one, so that you can invest in simple products such as recurring and fixed deposits. You can also get them to open a minor demat account, which you can operate once you turn 18. The decision about where to invest your money will depend on the goals towards which you are keen to invest, the returns you would like to earn and the amount of risk to your capital that you are willing to take. Stock market investments are good for folks who have a 10-year plus goal in mind and would like to earn an inflation beating return while taking on considerable risk. Stock market investments can deliver big losses in some years and big gains in others, usually evening out to an annualised 10-12% return for people who hold them for 10 years plus.
Over 5,500 stocks are listed on the Indian exchanges and their prices keep changing every day based on demand, supply and fundamental factors.
As it is difficult for any person tracking the stock market to gauge how prices have moved from so many stocks, the stock exchanges construct and publish indices such as Sensex30, Nifty50 and Nifty100 that are made up of the most actively traded and large stocks in the market, to reflect how the overall market is behaving.
These indices or ‘benchmarks’ therefore capture the price movements of the individual companies that figure in them, but are taken as representative of the whole market.
I have suggested a few resources to another reader here for learning tools (refer previous reply).
