Investment advice for youngsters

In your early 20s and planning to make your first investment? The first and foremost, keep aside three times your monthly expenses, before you begin.
Next, invest in life cover and health insurance. Many recommend buying young to lower your annual premium, which is because insurance at an early age means paying low premium.
If you are between 20 and 25 years of age, you could pay a relatively modest premium of Rs 6,000-Rs 10,000 annually.
Once insurance is taken care of, invest keeping in mind, future goals.
Establish some short-term goals like marriage and house, etc and choose mutual funds that invest in debt instruments. To expect good returns from equity funds, you should invest there for at least three years. If you have no such short-term goals, invest in mutual funds that invest in 100 per cent equity.
In case, you fall under the low income tax bracket, invest in debt instruments through fixed deposits. However, if tax returns are on the higher side, mutual funds that invest in debt are a good option. The earlier you start investing, the more time you will have to make profits.
Financial Advisor Akhilesh Tilotia and Ajay Bagga, CEO, Lotus Mutual Fund, help you out with tips on your first investment.
How should I plan my finances after marriage?
— Vivek, Bangalore
Ajay Bagga: Life insurance should be the first thing on your mind. The cover size should be 10 to 15 times your monthly salary.
For emergencies keep six-month expenses in the bank.
Third, keeping in mind your goals like house, children’s education and marriage and your retirement, invest in mutual funds and build your portfolio through asset allocation in a systematic way.
What are the things one should keep in mind when making one’s first investment?
Akhilesh: First establish your goals, both long-term and short-term. Retirement should be one of the goals as the average life span has increased. Asset allocation should be done in keeping with your age and circumstances. Insure yourself if you have dependents.
Ajay Bagga: First keep aside expenses for six months, for emergency use. Insurance cover should be to the tune of 10-15 times your monthly salary. To decide exposure in equity, subtract your age from 100. Say you are 24-years old, your investment in equity should be 75-80 per cent. But given your age, I suggest 100 per cent investment in equity.
I am an investment banker, earning approximately Rs 6 lakh (Rs 600,000) per annum. I want to invest in mutual funds. Which is better as investment: equity funds or debt funds?
— Aurn Pai, Mumbai
Ajay Bagga: You should go for equitym only, as you are just 24-years old. You don’t have to take into account the market’s performance. As you have to invest for 20-25 years, the power of compounding will work for you. Invest systematically in equity.
If you are earning Rs 40,000 a month, invest at least Rs 10,000 every month. Choose three to four well-diversified equity mutual funds and start systematic investment.
Akhilesh Tilotia: From the tax point of view, invest in Rs 8,000 per month in ELSS.
I work for a consulting firm. Where should I invest to save for retirement days? Suggest a good investment plan.
— N Chinmayi, Bangalore
Ajay Bagga: First comes tax savings. If you earn Rs 6 lakh per year, first invest to save Rs 1 lakh (Rs 100,000) from tax. You can invest in PPF, ELSS and LIC policy. Besides this, you can invest in equity through mutual funds or directly in equity, if you think you have the temperament and time to research to handle equity. At 26 years of age, a 100 per cent equity portfolio is good for you.
Later, you can save in other savings instruments.
Akhilesh Tilotia: If you don’t have dependents, you don’t need insurance. In keeping with your age and income, I suggest you take term insurance. It will be cheaper as well as you will invest in mutual funds.
Say, you take a Rs 10 lakh (Rs 1 million) term cover for an annual premium of Rs 3,000 and also get deduction under 80 C of the IT Act. But before this, get a health insurance cover. It also gives you tax benefits under 80 D of the IT Act.
I am pursing higher studies next year. How can I save so as to get decent returns on my savings? I have Rs 5 lakh (Rs 500,000) in savings whereas my annual income is around Rs 10 lakh.
— Neeraj, Mumbai
Akhilesh Tilotia: Keep away from investment in an instrument with the possibility of fluctuations. If your goals are short-term or within a span of two to three years, move your money slowly to debt instruments.
You can keep the money in bank fixed deposits or liquid funds. In fixed deposits, the lock-in period could be a little longer as compared to liquid funds. You may have to give penalty on early withdrawals or may even have to lose interest money. So liquid funds would be a good option. You can hope for nine to 10 per cent rate of returns.
Ajay Bagga: Education loan is also available at low interest rates. Parents can become guarantors.
I am 24, work in a media company and earn about Rs 3 lakh (Rs 300,000) per annum. How can I save tax? I need an investment period of not more than five years.
— Avinash Aiyar, Mumbai
Akhilesh Tilotia: First look at your EPF and get an idea about tax savings. You seem to be in a low tax bracket. After discounting Rs 1.10 lakh (Rs 110,000), calculate the minimum amount to be saved. Take term insurance and health cover. If there’s more tax liability, invest in PPF or ELSS. PPF has a 15-year lock-in period, whereas for ELSS it is three years.

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