Got a question about your money? What you should or should not do with it?
Our expert Devang Shah has the answers.
I am 28 and married. I am not sure whether or not I should invest in equity.
My monthly take home is Rs 13,500.
My insurance premium comes to Rs 1,000 every month and I save Rs 2,500 every month. This amount goes into my savings account.
- Prakash Sachdeva
Hi Prakash.
Learn to use equities as an investment vehicle to your benefit. You are of the right age to do that. Just remember that equity investment is not a short-term investment. You must be willing to hold on for a number of years. Those who invest in shares to make a quick buck stand to lose it quickly too!
My question to you is, do your current finances allow you to pull out Rs 500 every month to be put away for 10 years? If yes, do a Systematic Investment Plan in an equity fund starting from now.
An SIP involves putting away a fixed amount (in your case, Rs 500) every month in a mutual fund for a period of time. I suggest 10 years in your case. You should consider a diversified equity fund such as Templeton India Growth Fund. And you should expect an annualised return of about 16% per annum.
Another suggestion to you would be not to worry too much about the returns but be more focused about putting aside money every month into your savings account.
Once you have a reasonable sum accumulated, you should plan a time horizon for which you do not need the money. Then seek competent advice to invest it for that time horizon.
Your investment in the equity SIP I suggested earlier, will itself lead you into discovering alternative investment vehicles in the next few years.
Happy investing.
I am 23 years old and single. My monthly take home is Rs 25,000 and my expenses amount to Rs 12,000.
Can you suggest how to invest the remaining income?
Within two years, I may require a maximum of Rs 3,00,000 for my sister's wedding.
- Ram Krishnan
Hi!
You have the capability to save Rs 13,000 every month which adds up to 3,12,000 in two years.
Two years is a very short time for you to invest in higher return investments like equity. If you do invest in equities, the chances that your investment value is less than the original cost at the end of two years, is high.
The important question is what is the minimum 'must have' amount of money that you will need at the end of two years.
Let's for a moment assume that the answer is Rs 3,00,000. You need to put away Rs 12,000 every month starting today in a floating rate income fund such as Templeton Floating Rate Fund Short Term Growth or Grindlay Floating Rate Fund Short Term Growth.
Floating rate debt funds are those that invest in fixed-return investments which have a floating interest rate and not a fixed interest rate.
That, in all probability, will give you this amount.
You could start investing the balance Rs 1,000 in a diversified equity fund with a value investing style.
Value funds are those in which the fund manager looks at the fundamentals of the stocks and invests in them, irrespective of whether or not other fund stock market players are bullish on them. Theoretically, the fund manager would not mind picking up a stock that the market hates, if he finds value in it. Similarly, the fund manager would not touch a hot favourite of the stock traders if they do not believe it is a good value proposition.
Templeton India Growth Fund and Prudential ICICI Discovery Fund are supposed to be value funds. Value funds, due to their structure, are expected to be less volatile than other equity funds.
The time horizon for yielding optimal returns in an equity fund (which the above are) is 7 to 10 years. If you earn 16% on your monthly Rs 1,000 investment, the corpus will grow to almost Rs 3,00,000 in 10 years' time.
More importantly, over the next few years, it will provide you with information and education on how to make the most of equities and mutual funds as an investment vehicle.
Illustration: Dominic Xavier
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