Age: 27
I earn Rs 30,000 every month and have invested in Public Provident Fund (Rs 60,000), LIC (Rs 3,125) and an ICICI pension policy (Rs 10,000). I want to buy property worth Rs 35,00,000 next year. Which means I have to take a loan of Rs 15,00,000.
I want my monthly income from investments to be more than sufficient to pay EMI. At the time of retirement, I wish to earn Rs 15,000 per month and have reserve of Rs 10,00,000 (excluding property). Am I too ambitious? Would buying stocks make me achieve what I want? If yes, how should I go about it?
- Yogesh P
The positives first. You are only 27 and have another 30 earning years, during which time you should be able to accumulate a tidy sum for yourself. If you are willing to ride through the ups and downs of the stock market without getting flustered, consider an equity fund into which you will invest every month.
If you set aside Rs 5,000 every month over the next 30 years at a rate of 11% (I am taking a conservative estimate of return on equity, the actual return could be higher), you will have a crore (yes, you heard that right) when you are 57.
That is the magic of getting time to work for you. It is important to save month after month, every month, and to learn the discipline of not being perturbed by market prices. You will have enough to meet your retirement target. Keep some money in the PPF as a buffer for hard times. And, as your income goes up, expand your portfolio to include more asset classes, and more choices.
Now for the negative. There is no investment that will generate enough money to pay your EMI. You have to pay it out of your current salary.
Age: 29
Family: Married. No children (as of now).
How do I build a portfolio with short term and long term returns? How must I allocate between safe and risky investments? What percentage of my income must find its way into the various investments? How much must I invest in insurance and PPF? Must property be a part of the portfolio? If yes, I will have to take a loan. Eventually, I have to take care of my retirement and, of course, my children.
- Abbas Ansari
That's too many questions :-). It is best answered by a personal financial planner who will build your portfolio after considering all your needs.
At the bottom of the pyramid are the absolute essential safe options. Have some bank fixed deposits, open a PPF account (it is still the only choice with tax free interest), buy some RBI relief bonds and invest some money in a post office deposit.
You then build the next block of the pyramid, where you move into some amount of risk cover for yourself and the family, and accumulate of some assets. Make some investments in property and gold. Buy adequate insurance. Make sure you have your income generating capability well assessed.
Move to the next block, where you are ready to look at mutual funds. Choose from the top performing, well managed fund houses with reputation. Allocate some money into balanced funds and some into diversified equity funds. About 20% can be in specific aggressive funds. Build a portfolio of mutual funds, either by allocating money or through monthly investments in a Systematic Investment Plan.
The top layer of your pyramid is for direct equity, derivatives and risky choices. Keep it minimal, and only after you have built a sturdy base. Draw this picture on a piece of paper. See what you can allocate and where.
You have to build it from the bottom. And whether you go to the next level at all depends on your income, your risk appetite and your time frame. You have time on your side, you can begin to build. Make sure you always take a holistic view of the whole pyramid and keep it balanced.
Over time, you should have a portfolio that is almost completely allocated. You only have to increase its size by adding to the components.
Age: 20's
Family: Single
Do you think it is wise to invest in equity? What sort of insurance policy must I take? Should I open a PPF account? Even if I do not get married, I would like to save for my niece and nephew, who are very small now. Of course, if I get married, I will have my own wedding and children to take care of.
- Rohit Kulkarni
It looks like many of you look at me as some kind of one-stop advice provider who has answers to all questions!
While you seem to be an enthusiastic saver, I sense that, given the stage of your life, you will have enough expenses to take care of. Do open a PPF account and invest some money. Also start a monthly saving plan in a mutual fund and invest in equity through a diversified fund.
If you don't have dependents at this time, what are you buying insurance for? If you are too keen, buy a pure term policy. At your age, the premium should be as low as Rs 5,000 to 6,000 per annum.
If you are keen to help your niece and nephew, give them a gift of a long term child care plan that needs a one-time investment. By the time they are older, it will become a tidy sum.
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Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.