Ask Us: On investment

It is heartening to know that you have different time frames in mind for your goals.

Q. I am 26 and a soldier. I earn ₹35,000 per month. I wish to begin investing. How should I start?

Kahinur Das

A. First, thank you for your service. If you are a fresher to investment, you can start with simple products such as Public Provident Fund (PPF) and recurring deposits in banks. A PPF account can be opened in all major banks and post offices. Since bank rates are low, keep the tenure at 1 year and lock for the longer term when interest rates go up.

Once you get familiar with this, you can choose small sums (viz. 20% of your savings) in index equity funds — choose a Nifty 100 index fund — where you need not track the stock market nor try to check which fund manager is good. You can do a regular systematic investment plan (SIP) in this. This should be a good start.

Q. I am 22 and have recently joined an IT firm. I earn ₹25,000 and plan to give ₹5,000 to my family. Could you please guide me on short-term investments (less than 5 years), mid-term investments (5-10 years) and long-term investments (greater than 10 years)?

Vaideesh

A. It is heartening to know that you have different time frames in mind for your goals. If these goals are quantifiable try to put a number to them so that you know how much to save. We are not sure what you can save post your expenses.

However, as it may not exceed ₹20,000, you can focus on the immediate goal (less than 5 years away) and put away 15-20% in equity index funds such as the Nifty 50 using the SIP route.

For the remaining sum, use a combination of recurring deposits, ultra-short debt funds and short-duration funds. Get the help of a financial adviser to ensure you do not choose funds with high credit risk.

For the 5–10-year goal, you can invest 40% in equities using a combination of Nifty 50 index fund, Nifty 500 index fund and an international fund that mimics the U.S. index — S&P 500. For debt, use the above said categories of funds along with corporate bond funds. For your goal targeting 10 years, consider putting about 50-70% in equity depending on how well you can handle the losses in equity when it falls (and it will fall). If you have the right guidance, use some actively- managed funds across flexi-, mid- and small-cap categories in addition to index funds. For the debt portion, if your goal is for retirement, you can consider opening an NPS account (if your tax-saving need goes up with a rise in income in a few years) and use the government (G) and corporate bond (C) option alone. Otherwise, choose the same combination of debt options suggested for the 5–10-year goal.

Q. I am 25 and a government employee. My salary is ₹30,000. I spend about ₹10,000-₹12,000. Please provide suggestions to invest systematically. I wish to focus on high growth for over 10 years. Also, I’m interested in the stock market but don’t know enough. Please suggest the best mutual fund company.

Pratap S. U.

A. As a government employee, you will likely already have an NPS contribution. In addition, consider the SIP route to investing in the Nifty 500 index fund and Midcap 150 index fund, given that you want high growth.

Since you are new to investing, it is easier to use index funds than look for the ‘best managed’ active equity fund. You will also not be mis-sold any products in the index fund space. Please note that there will be short-term losses in these funds too as that is the way equity operates. Use the SIP route to invest steadily.

As for stocks, please study and read up regularly about the market and after a few years, consider setting aside a small sum to invest.

Let mutual funds be your primary route to investing. You can also use simple products such as PPF to protect your wealth from the ups and downs of equity.

(The author is Co-founder, Primeinvestor.in)

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