Q. I have been saving ₹4,000 per month and started earning in the last few months. I want to plan investments in some mutual fund or via SIPs. I am also open to direct investments. What will be a good option for beginners?
A. You can consider simple equity funds from the Nifty 50, and Nifty 500 indices and use PPF as part of your debt option. PPF can also act as your tax-saving investment in case you fall under a taxable slab. Apart from this, make sure you take a good health insurance policy and cover your family too, if they don’t have one. This has become a necessity now.
If you have dependent parents, spouse, or children, please take a term insurance to cover at least 8 years of your income and a personal accident insurance.
Q. I am a 20-year-old student. I have no earnings, savings, or investments, so I have zero income. However, I want to learn about financial planning so that whenever I receive my very first salary, I put it in the right place and at the right time. Kindly also suggest how I may earn money being a student.
A. It is good to know that you want to learn and earn. There is plenty of material on the Internet to read up on financial planning. You can also read good books like ‘Let’s talk Money’ and Retire Rich’. If you need to earn money as a student, the best is for you to do a part-time job, likely online in the present scenario, connected with your area of study. Other than this, it is not a wise choice to try to do stock trading to make money until such time you have adequate savings of your own. When you have such savings, start a combination of recurring deposit for shorter periods of 1-2 years and open a PPF account to deposit some savings in it. These early habits will inculcate disciplined savings. You can then slowly venture into other investment products.
Q. I am a 25-year-old student and have savings of about ₹50,000 for investment. I can also invest ₹1,000-5,000 as monthly contribution in some productive assets, but that must be somewhat predictable and profitable.
I can put my money in these options for up to seven years (if better options are available then in that case up to 15 years). Based on the above criteria, please suggest options for me.
A. If you want your returns to be predictable, then it is best that you go for fixed-income options. At present, consider investing the lump sum in RBI Floating Rate Savings Bond. This is a 7-year lock-in product where interest rate will be floating (7.15% at present) and will increase if the rate goes up and decrease if it falls. But it will remain 35 basis points higher than the NSC rate. So, this is one of the superior-returns-and-safe option today. The return is not fixed — to that extent it is not entirely predictable. But you can expect better-than-FD rates. For the remaining amount, you can consider 50% of your monthly savings in bank RDs where return is predictable and another 50% in equity index funds where it will be profitable in the long term but will never be predictable. We suggest this considering your age and ability to take risk. Please note that no market-linked product will be predictable.
And it may have short-term losses but can generate profits in the long term.
Q. I am 25 years old. I recently got a government job, and my basic salary is ₹30,000. I want to make the best use of my salary. Can you please guide me on how to spend? Should I invest a part of my salary, and if yes then where and how? Please also recommend some books on this.
A. Congratulations on your new job. It is good to start saving early. But it is hard to teach people on how to spend as it is entirely based on personal preferences and habits. However, you can learn a lot about investing and personal finance in good books like ‘Let’s talk Money’ and Retire Rich’. Set aside a sum for investment and then spend. That’s a better way to handle your money. Consider simple products like PPF and recurring deposit and slowly start SIP on equity index funds such as the Nifty 50 index. You can then slowly ramp up mutual funds. Do not get swayed by the lure of quick returns in stock markets without taking a few years to understand how it works. Read good books, rather than just listening to videos that teach you ‘everything about investing’ in 20 minutes.
Q. I am 70. I had doing business for 45 years. Unfortunately, I faced a loss in business a few years ago and had to sell all my assets to settle liabilities. My wife and I are now left with our residential house and a bank deposit of ₹30 lakh only. I have no pension and we must depend on the interest earned from these deposits. My children are employed, they have their own family responsibilities and are staying separately. Since the bank deposit interest has reduced considerably, we find it difficult to make both ends meet. I request you to suggest some good and safe investment plan which will gain at least ₹25,000 per month for our expenses, including medicines.
A. I am sorry to note your situation. It is indeed difficult to get a high interest rate in these times. You might want to consider investing in Senior Citizens’ Savings Scheme (SCSS) available with the post office and major banks, for ₹15 lakh and the rest in RBI Floating Rate Bonds (available in SBI and a few other large banks and brokerages).
Right now, the SCSS gives 7.4% and the RBI Bonds 7.15%. But the RBI Bond rates may go up if interest rates move up and vice versa since it is a floating rate bond. But you can expect it to be higher than regular FD rates. We do recognise it is hard to meet you target of ₹25,000 per month even with these. Make sure your children include you in any medical insurance policies so that you get cover on at least key illness or hospitalisation.
Q. I’m 21 years old and have recently completed a bachelor’s degree. I now work for a private company, earning about ₹50,000 a month. I’m planning to go abroad and complete my master’s this year. Therefore, I want to invest money for 4-5 months. Also, if I were to invest for a year, what would be the best option?
A. Considering the short period of investment, simply invest in FDs or liquid funds. Any other form of investing for this time frame, especially equity market investing, can be writ with risks. For one year at best, you can start a recurring deposit or use ultra-short debt mutual funds.
Q. I am pursuing my MBA and I get ₹5,000 for my expenses every month from my dad. Other than an occasional outing for ₹500 a month, I don’t spend the rest. So, I want to save it for my future. The amount is lying in my account. I have interest in mutual funds. Can you suggest good mutual fund schemes so that I can divide my 5,000 by five and invest in different schemes to get returns after 10 years?
A. Considering your time frame, you might want to test your feet in equity through mutual funds. Use Nifty 50 and Nifty 500 equity index funds and 30-50% of your savings in liquid funds or recurring deposits or PPF (15 years). You can gradually increase this and widen your fund choice with more index funds. Index funds will allow you to simply mimic the market without the need to track fund performance or strategy or fund manager-change. It also comes at a far lower cost as they are passive and simply allow you to ride in key market benchmarks.
(Vidya Bala is Co-founder, Primeinvestor.in)