INVESTING
RULES FOR YOUTH
If
you are about to start investing, go through these dos and don’ts to help
secure your financial future.
Youth is
wasted on the young, said Irish playwright George Bernard Shaw. It’s unlikely
that the maxim was coined to fit into the confines of personal finance, yet
it’s relevance to the subject is indubitable. For, besides the truths of life
that appear as epiphanies in old age, most people realise that the financial
strain tugging at their happiness could have been avoided if they had started
saving and investing at the right time. Considering how little it takes to
ensure financial security if one begins planning at, say, 18 or 20, it’s a
wonder why more people don’t think of it. This aversion to one’s own financial
well-being and the untimely concern has been documented by the HSBC report on
The Power of Planning 2011, which conducted a global survey, including 1,028
Indian respondents. According to this, 54% of people aged 30-39 did not have
any short-term savings, while 35% in the 50-59 age group were not saving for
retirement. To be fair, nearly 17% of all respondents were concerned about the
risk of doing nothing for retirement. Yet, this concern fails to materialise
into action. Why?
The inertia or revulsion for financial planning can be attributed to various reasons. Youth is a period redolent of revelry, marked by material pleasures and witness to heightened consumption. So whether you are still in college or have just acquired a job, unabashed spending to seek peers’ approval is a norm. Saving and investing take a backseat. Since marriage, kids and retirement are so intangibly unreal and distant, planning for these goals seems almost unfair. Time, however, is a juggernaut rolling with such pace that you are in your 30s before you realise you haven’t even begun planning. While it’s never too late to start setting your finances in order, you have lost precious years of wealth creation.
“People also delay investment waiting for extra money like bonus or trying to find the right time to enter the markets,” says Sonia Chadha, deputy head, private clients, SKP Securities.
Another reason is the unfounded belief that finance is an inscrutable science and, hence, not to be tampered with. The fear and awe of the subject is so deep-rooted that people would rather jeopardise their financial security than try to understand it. If they did, they would realise that managing money is an acquired skill. You learn on the job and improvise along the way. The important thing is to make a start.
In the following pages, we’ll try to do just that—hold your hand while you sputter into action. Even as we explain why it is critical for you to make an early start, we shall demystify financial planning and investing, taking you through the various steps that can empower you and minimise your errors.
WHY SHOULD I START EARLY?
You don’t have to, but then the loss is yours. It’s ironical that people stave off simple steps that can bring them the very things they hanker after—car, house, holidays, comfortable retirement. If you start putting away puny portions of your money in proper investment avenues, it’s unlikely you will want for funds.
Isn’t it simpler to invest small amounts over a longer period than struggle to muster bigger funds in a short span of time? Besides, you can benefit from compounding (see Power of compounding). “It’s the ‘rolling snowball’ effect. Compounding adds to your earnings on your reinvested earnings. The longer you leave your money to work, the more exciting the numbers get,” says Kapil Narang, COO, Ameriprise India.
If you start investing a measly 2,000 a month at 20, you will have accumulated 1.26 crore by the time you are 60 (at 10%). If, on the other hand, you start saving the same amount at 30, you will be able to pile up only 65 lakh. Similarly, if you were to increase your contribution to 5,000 a month, you will collect as much as 3.16 crore by the time you quit working at 60.
Logic also demands that you start young because you are unlikely to be bound by responsibilities of a family or house at this stage. In all likelihood you will still be with your parents, so you can easily spare at least 40-50% of the money for investing after taking care of your basic needs and wants.
Besides, given the current economic scenario, inflation is likely to turn into a bigger demon than it is, snipping at your funds 30 years from now. This means that you will require more money in three decades to maintain the same standard of living as you do at present. If you simply save, without investing it to earn high returns, you will find it difficult to fend off this demon. Also remember that you may not have any pension to support you after retirement. Given that life expectancy has risen in the past few years and people are leading active lives till their 80s, it is critical for you to amass a big corpus to sustain yourself. If you do not make a headstart, you may be forced to shrivel down your lifestyle.
WHERE DO I BEGIN?
You may be convinced about an early start, but what do you do with the money? Begin at the beginning.
Assess your finances
Before you make plans for your money, undertake a simple budgeting exercise—assess your current financial status. If you are a student, find out about the funds you have accumulated over the years in the form of pocket money, monetary gifts and prizes, income from part-time jobs, etc. If you have just started with a job, note down the salary you get in hand every month, along with the money you have already saved, if any. The next step is to determine your monthly expenses, which should be done over 2-3 months to arrive at an average. Include every category, such as food, clothes, and entertainment. Once you have a clear picture of your income and outgo, you will know how much you can save every month.
Make financial goals
Now, pen down all your financial goals, short-term and long-term. “Though we all have dreams, we rarely put them down on paper. Even if some of us do, very few translate these into specific numbers,” says Narang. “This is essential as the nature of your goal will decide the route you choose to achieve them,” he adds.
Include all your goals, whether it is buying a bike or TV two years down the line or building a house 10 years later. Numbers are important, so note the exact time after which you need the money and how much. Don’t forget to include the impact of inflation and figure out the bloated sum for each goal. This will set a target for you to work towards.
Know yourself
It is also important at this stage to figure out your risk appetite as well as your financial personality. How much risk can you digest to reach your goals? Will you opt for high-return, high-risk options or would you rather have ensured returns at low risk? More crucially, analyse yourself to find out if you have any personality aberrations—do you spend too much, or are fickle with your plans, or simply lazy about your finances? (see Can your money personality be a problem?) Discipline yourself before embarking on any investment to make sure you stay the course.
Maximise your savings
If you are a student and have no earning other than pocket money, but are keen to invest more, what do you do? You can either cut down your expenses or find ways to make money, say, by tapping your hobby or finding a part-time job (see Make money...). “I started freelancing with an HR company when I was in college. This was enough for my expenses and I managed to save some for investing,” says SS Vikyath, a 23-year-old from Bangalore.
WHAT SHOULD I KNOW BEFORE I START INVESTING?
You are now practically ready to take the investing plunge. However, there are some financial aspects that you need to be aware of or take care of before you do so.
Insurance
Should you buy life and health insurance at this stage in your life? Insurance is meant to financially protect your family and assets if you were to die or become disabled. If you are still studying, do not have an income or a financial dependant, you don’t need life insurance. If, however, you are just starting with a job and your parents have either retired or are about to do so, pick up an online term plan. It’s not a good idea to consider endowment plans or Ulips at this stage because these come with high premiums and do not serve the purpose of securing your dependants (see Do you know the difference?). The online plan will be cheaper than the offline one and will offer adequate protection at an affordable price. However, remember that as you grow older, get married, have kids and take loans, you will need to increase this cover.
It’s also important to buy a health cover because a medical emergency can wipe out your entire corpus. Chadha suggests that one should not depend on the employer cover. “It will exist only till you work with a company, and the longer you wait to buy a cover, the more expensive it will be. You will be without a cover if you change jobs or if you quit to study further,” she says.
Contingency fund
This is another anchor you must lay before investing. Make sure to accumulate funds equal to six months’ expenses to eliminate the possibility of being flattened by a financial crisis, say, loss of job. Make sure you do not dip into it however strong the temptation.
Taxation
This too is a dreaded topic that you need to confront. As a student or just into a new job, you are unlikely to have a big enough income to file tax returns and those with a salary of less than 5 lakh a year are exempt from filing. However, a couple of years into work life, you may have to do so, especially if the gains from your investments raise your income level. So acquaint yourself with the basics of taxation—how to file, the deductions and exemptions that you are eligible for, the components of your salary that are tax-exempt, etc.
Besides, you should be aware of the manner in which your investments are likely to be taxed. So if you have put your money in a fixed deposit, you will have to pay tax on the interest every year regardless of the maturity date. Or if you pick mutual funds, you won’t have to pay tax if you sell the units after a year. This can help you from losing out on profit.
Managing debt
This is a trap that young investors are most prone to falling in. The lure of free credit can make you believe it’s a treasure you can dip into endlessly. The freedom of cashless transactions comes with the responsibility of paying the bills on time. Rolling over means paying a high interest rate, which can eventually lead to bad debts you can find difficult to recover from. As a new investor, you do not want to lose the money you can invest in paying high interest. It’s simpler to go for a debit card, where the money is instantly deducted from your account, or make cash transactions to know exactly how much money you are spending.
Besides, it’s important you don’t default on your payments because it will decide your ability to get a loan in the future. Your credit score, that is, the history of your credit and loan payments maintained by the Credit Information Bureau (Cibil), is used by banks and financial institutions to determine your ability to repay (see Do you know the difference?). As for loans, it’s a good idea not to take on the responsibility of big EMIs that you may not be able to fulfil at an early stage in your career. So wait for a few years till your salary is big enough to cushion the weight of an EMI before you take a loan.
HOW DO I INVEST?
After the initialisation, you are finally ready to invest. How much money should you put in to grow? While this depends entirely on your income and how much you can spare, ideally, you should put in 30-35% of your income and retain the percentage with the rise in salary each year.
Next, how do you know where to put your money? This is, of course, assuming that you have a bank account, which should technically be your first step to investing. “A bank account helps you understand that there is only a limited amount available for expenditure and, hence, all your expenses get aligned automatically,” says Uma Shashikant, managing director, Centre for Investment Education and Learning.
Where you invest will be dictated by three factors: goal, time horizon for the goal, and the risk you are willing to take to achieve it. For this, you should be familiar with all the investing tools or instruments. These are called asset classes and include debt, equity, real estate, gold, cash, etc. It is best to invest in different asset classes to reduce the risk since every class is unlikely to fare poorly in any given economic scenario.
Short-term goals
Do you want to buy a small car or perhaps a laptop? Since the time horizon is short, you cannot put your money in a high-risk option that has the potential to reduce your principal. A simple recurring deposit is ideal for goals that are about three years away and the surplus is little. Besides, as Shashikant explains: “Instruments like an RD are preemptive savings, since the money is deducted from the account on a given date, leaving you with lesser cash to spend.” You can start with as little as 500 for a minimum of six months. The return varies from 7.25% per annum to 9.25, depending on the term. So, if you invest 500 per month in an RD for a year, you will receive 6,240 on maturity.
There are other options like short-term fixed maturity plans and bank FDs, which may offer higher returns, but here the constraint is that they require a lump-sum investment, which may not be possible for students. Then there are mutual funds, where too you can start with 500 and the returns are higher, but the catch is that they can be disastrous for you in the short term. Take HDFC Top 200, one of the best performing funds in the large-cap category. Its three-month returns are -0.9%, one-year returns are -5.9%, while the five-year returns are 10.5%. When the market fluctuation is high, as is currently the case, and the surplus is less, do not take the risk.
You don’t really need a PPF account in the initial years since a certain amount is being saved for you in the Employee Provident Fund. Every month, 12.5% from your basic salary is deducted and added to your EPF account. The same amount is contributed by your employer and earns an interest of 8.6% per annum. However, the EPF saving will not suffice for all your future needs as the interest barely beats inflation.
Long-term goals
For long-term growth, you will have to add another instrument to your portfolio: equity. There are various ways to invest in equity—you can either buy stocks directly or invest via mutual funds. While you have time at your disposal, going all guns blazing is not the way to go about it. Remember, that direct equity is for people who understand the markets well.
Ritwik Kapoor, a 20-year-old student from Delhi, has been actively investing in smalland mid-cap stocks for the past two years. But of the 15 that he has invested in, 10 are in the red. The same is true of Jaspal Singh, another youngster from Delhi, who bought the IPOs of Coal India and Muthoot Finance. These are risky investments and are not recommended by planners, especially for youth. Pankaaj Maalde, head, Apnapaisa.com, says, “Jaspal should exit direct equity as it requires indepth research and analysis. He should invest only through mutual funds.” For first-time income earners, it’s safest to start with mutual fund SIPs, say experts.
Within mutual funds, there are many categories, which can be confusing. To simplify, Dhirendra Kumar, CEO of Value Research, suggests the ‘core and satellite’ approach. “Investors should invest 70-80% in core funds and the remaining in satellite funds. You can have 2-3 funds in the core, comprising largecap and large- and mid-cap funds, with the satellite component made of sectoral and multi-cap funds. The investments will be able to absorb shocks and earn high returns over various market cycles,” he says.
The thumb rule is to subtract your age from 100 and the resultant number should be your exposure to equity. Select funds that have a proven track record and performance history and consult various fund houses to see their ratings for the fund. If equity mutual funds seem risky, begin with balanced funds, which invest in both equity and debt. Some of the best funds in this category are HDFC Prudence and DSPBR Balanced.
However, do not forget debt instruments as they are a shield against market volatility. You can consider the PPF and bank FDs, but use the former for goals that are 15 years away. If you have a lump sum, invest in bank FDs since they are currently offering attractive rates of at least 8.25% for more than a year and 9% for more than two years.
As for real estate, do not take a home loan in the first few years since you should not tie up your funds in an investment that is highly illiquid and prevents you from diversifying in other assets. Besides, you may want to jobhop and shift cities in the first few years, so it will be unfeasible to buy a house. Wait for a few years before taking on this responsibility.
Beware
Watch out for the following investing pitfalls to protect your hard-earned money. Your uncle or cousin will always have a word of advice, but check before you follow them. So, if you have just started working, your tax is likely to be really low and buying a Ulip may not be a good idea: it saves 2,000 as tax, gives inadequate protection, low returns and a lock-in period of five years. Remember the IT boom and the resultant nosedive by the Internet stocks? Follow the herd and you are most likely to go down with it. Invest according to your needs, objectives, risk appetite and based on your research. Each time there is an IPO, there will be ads telling you all that is good about the company. Do not fall for these; trust your own research.
The inertia or revulsion for financial planning can be attributed to various reasons. Youth is a period redolent of revelry, marked by material pleasures and witness to heightened consumption. So whether you are still in college or have just acquired a job, unabashed spending to seek peers’ approval is a norm. Saving and investing take a backseat. Since marriage, kids and retirement are so intangibly unreal and distant, planning for these goals seems almost unfair. Time, however, is a juggernaut rolling with such pace that you are in your 30s before you realise you haven’t even begun planning. While it’s never too late to start setting your finances in order, you have lost precious years of wealth creation.
“People also delay investment waiting for extra money like bonus or trying to find the right time to enter the markets,” says Sonia Chadha, deputy head, private clients, SKP Securities.
Another reason is the unfounded belief that finance is an inscrutable science and, hence, not to be tampered with. The fear and awe of the subject is so deep-rooted that people would rather jeopardise their financial security than try to understand it. If they did, they would realise that managing money is an acquired skill. You learn on the job and improvise along the way. The important thing is to make a start.
In the following pages, we’ll try to do just that—hold your hand while you sputter into action. Even as we explain why it is critical for you to make an early start, we shall demystify financial planning and investing, taking you through the various steps that can empower you and minimise your errors.
WHY SHOULD I START EARLY?
You don’t have to, but then the loss is yours. It’s ironical that people stave off simple steps that can bring them the very things they hanker after—car, house, holidays, comfortable retirement. If you start putting away puny portions of your money in proper investment avenues, it’s unlikely you will want for funds.
Isn’t it simpler to invest small amounts over a longer period than struggle to muster bigger funds in a short span of time? Besides, you can benefit from compounding (see Power of compounding). “It’s the ‘rolling snowball’ effect. Compounding adds to your earnings on your reinvested earnings. The longer you leave your money to work, the more exciting the numbers get,” says Kapil Narang, COO, Ameriprise India.
If you start investing a measly 2,000 a month at 20, you will have accumulated 1.26 crore by the time you are 60 (at 10%). If, on the other hand, you start saving the same amount at 30, you will be able to pile up only 65 lakh. Similarly, if you were to increase your contribution to 5,000 a month, you will collect as much as 3.16 crore by the time you quit working at 60.
Logic also demands that you start young because you are unlikely to be bound by responsibilities of a family or house at this stage. In all likelihood you will still be with your parents, so you can easily spare at least 40-50% of the money for investing after taking care of your basic needs and wants.
Besides, given the current economic scenario, inflation is likely to turn into a bigger demon than it is, snipping at your funds 30 years from now. This means that you will require more money in three decades to maintain the same standard of living as you do at present. If you simply save, without investing it to earn high returns, you will find it difficult to fend off this demon. Also remember that you may not have any pension to support you after retirement. Given that life expectancy has risen in the past few years and people are leading active lives till their 80s, it is critical for you to amass a big corpus to sustain yourself. If you do not make a headstart, you may be forced to shrivel down your lifestyle.
WHERE DO I BEGIN?
You may be convinced about an early start, but what do you do with the money? Begin at the beginning.
Assess your finances
Before you make plans for your money, undertake a simple budgeting exercise—assess your current financial status. If you are a student, find out about the funds you have accumulated over the years in the form of pocket money, monetary gifts and prizes, income from part-time jobs, etc. If you have just started with a job, note down the salary you get in hand every month, along with the money you have already saved, if any. The next step is to determine your monthly expenses, which should be done over 2-3 months to arrive at an average. Include every category, such as food, clothes, and entertainment. Once you have a clear picture of your income and outgo, you will know how much you can save every month.
Make financial goals
Now, pen down all your financial goals, short-term and long-term. “Though we all have dreams, we rarely put them down on paper. Even if some of us do, very few translate these into specific numbers,” says Narang. “This is essential as the nature of your goal will decide the route you choose to achieve them,” he adds.
Include all your goals, whether it is buying a bike or TV two years down the line or building a house 10 years later. Numbers are important, so note the exact time after which you need the money and how much. Don’t forget to include the impact of inflation and figure out the bloated sum for each goal. This will set a target for you to work towards.
Know yourself
It is also important at this stage to figure out your risk appetite as well as your financial personality. How much risk can you digest to reach your goals? Will you opt for high-return, high-risk options or would you rather have ensured returns at low risk? More crucially, analyse yourself to find out if you have any personality aberrations—do you spend too much, or are fickle with your plans, or simply lazy about your finances? (see Can your money personality be a problem?) Discipline yourself before embarking on any investment to make sure you stay the course.
Maximise your savings
If you are a student and have no earning other than pocket money, but are keen to invest more, what do you do? You can either cut down your expenses or find ways to make money, say, by tapping your hobby or finding a part-time job (see Make money...). “I started freelancing with an HR company when I was in college. This was enough for my expenses and I managed to save some for investing,” says SS Vikyath, a 23-year-old from Bangalore.
WHAT SHOULD I KNOW BEFORE I START INVESTING?
You are now practically ready to take the investing plunge. However, there are some financial aspects that you need to be aware of or take care of before you do so.
Insurance
Should you buy life and health insurance at this stage in your life? Insurance is meant to financially protect your family and assets if you were to die or become disabled. If you are still studying, do not have an income or a financial dependant, you don’t need life insurance. If, however, you are just starting with a job and your parents have either retired or are about to do so, pick up an online term plan. It’s not a good idea to consider endowment plans or Ulips at this stage because these come with high premiums and do not serve the purpose of securing your dependants (see Do you know the difference?). The online plan will be cheaper than the offline one and will offer adequate protection at an affordable price. However, remember that as you grow older, get married, have kids and take loans, you will need to increase this cover.
It’s also important to buy a health cover because a medical emergency can wipe out your entire corpus. Chadha suggests that one should not depend on the employer cover. “It will exist only till you work with a company, and the longer you wait to buy a cover, the more expensive it will be. You will be without a cover if you change jobs or if you quit to study further,” she says.
Contingency fund
This is another anchor you must lay before investing. Make sure to accumulate funds equal to six months’ expenses to eliminate the possibility of being flattened by a financial crisis, say, loss of job. Make sure you do not dip into it however strong the temptation.
Taxation
This too is a dreaded topic that you need to confront. As a student or just into a new job, you are unlikely to have a big enough income to file tax returns and those with a salary of less than 5 lakh a year are exempt from filing. However, a couple of years into work life, you may have to do so, especially if the gains from your investments raise your income level. So acquaint yourself with the basics of taxation—how to file, the deductions and exemptions that you are eligible for, the components of your salary that are tax-exempt, etc.
Besides, you should be aware of the manner in which your investments are likely to be taxed. So if you have put your money in a fixed deposit, you will have to pay tax on the interest every year regardless of the maturity date. Or if you pick mutual funds, you won’t have to pay tax if you sell the units after a year. This can help you from losing out on profit.
Managing debt
This is a trap that young investors are most prone to falling in. The lure of free credit can make you believe it’s a treasure you can dip into endlessly. The freedom of cashless transactions comes with the responsibility of paying the bills on time. Rolling over means paying a high interest rate, which can eventually lead to bad debts you can find difficult to recover from. As a new investor, you do not want to lose the money you can invest in paying high interest. It’s simpler to go for a debit card, where the money is instantly deducted from your account, or make cash transactions to know exactly how much money you are spending.
Besides, it’s important you don’t default on your payments because it will decide your ability to get a loan in the future. Your credit score, that is, the history of your credit and loan payments maintained by the Credit Information Bureau (Cibil), is used by banks and financial institutions to determine your ability to repay (see Do you know the difference?). As for loans, it’s a good idea not to take on the responsibility of big EMIs that you may not be able to fulfil at an early stage in your career. So wait for a few years till your salary is big enough to cushion the weight of an EMI before you take a loan.
HOW DO I INVEST?
After the initialisation, you are finally ready to invest. How much money should you put in to grow? While this depends entirely on your income and how much you can spare, ideally, you should put in 30-35% of your income and retain the percentage with the rise in salary each year.
Next, how do you know where to put your money? This is, of course, assuming that you have a bank account, which should technically be your first step to investing. “A bank account helps you understand that there is only a limited amount available for expenditure and, hence, all your expenses get aligned automatically,” says Uma Shashikant, managing director, Centre for Investment Education and Learning.
Where you invest will be dictated by three factors: goal, time horizon for the goal, and the risk you are willing to take to achieve it. For this, you should be familiar with all the investing tools or instruments. These are called asset classes and include debt, equity, real estate, gold, cash, etc. It is best to invest in different asset classes to reduce the risk since every class is unlikely to fare poorly in any given economic scenario.
Short-term goals
Do you want to buy a small car or perhaps a laptop? Since the time horizon is short, you cannot put your money in a high-risk option that has the potential to reduce your principal. A simple recurring deposit is ideal for goals that are about three years away and the surplus is little. Besides, as Shashikant explains: “Instruments like an RD are preemptive savings, since the money is deducted from the account on a given date, leaving you with lesser cash to spend.” You can start with as little as 500 for a minimum of six months. The return varies from 7.25% per annum to 9.25, depending on the term. So, if you invest 500 per month in an RD for a year, you will receive 6,240 on maturity.
There are other options like short-term fixed maturity plans and bank FDs, which may offer higher returns, but here the constraint is that they require a lump-sum investment, which may not be possible for students. Then there are mutual funds, where too you can start with 500 and the returns are higher, but the catch is that they can be disastrous for you in the short term. Take HDFC Top 200, one of the best performing funds in the large-cap category. Its three-month returns are -0.9%, one-year returns are -5.9%, while the five-year returns are 10.5%. When the market fluctuation is high, as is currently the case, and the surplus is less, do not take the risk.
You don’t really need a PPF account in the initial years since a certain amount is being saved for you in the Employee Provident Fund. Every month, 12.5% from your basic salary is deducted and added to your EPF account. The same amount is contributed by your employer and earns an interest of 8.6% per annum. However, the EPF saving will not suffice for all your future needs as the interest barely beats inflation.
Long-term goals
For long-term growth, you will have to add another instrument to your portfolio: equity. There are various ways to invest in equity—you can either buy stocks directly or invest via mutual funds. While you have time at your disposal, going all guns blazing is not the way to go about it. Remember, that direct equity is for people who understand the markets well.
Ritwik Kapoor, a 20-year-old student from Delhi, has been actively investing in smalland mid-cap stocks for the past two years. But of the 15 that he has invested in, 10 are in the red. The same is true of Jaspal Singh, another youngster from Delhi, who bought the IPOs of Coal India and Muthoot Finance. These are risky investments and are not recommended by planners, especially for youth. Pankaaj Maalde, head, Apnapaisa.com, says, “Jaspal should exit direct equity as it requires indepth research and analysis. He should invest only through mutual funds.” For first-time income earners, it’s safest to start with mutual fund SIPs, say experts.
Within mutual funds, there are many categories, which can be confusing. To simplify, Dhirendra Kumar, CEO of Value Research, suggests the ‘core and satellite’ approach. “Investors should invest 70-80% in core funds and the remaining in satellite funds. You can have 2-3 funds in the core, comprising largecap and large- and mid-cap funds, with the satellite component made of sectoral and multi-cap funds. The investments will be able to absorb shocks and earn high returns over various market cycles,” he says.
The thumb rule is to subtract your age from 100 and the resultant number should be your exposure to equity. Select funds that have a proven track record and performance history and consult various fund houses to see their ratings for the fund. If equity mutual funds seem risky, begin with balanced funds, which invest in both equity and debt. Some of the best funds in this category are HDFC Prudence and DSPBR Balanced.
However, do not forget debt instruments as they are a shield against market volatility. You can consider the PPF and bank FDs, but use the former for goals that are 15 years away. If you have a lump sum, invest in bank FDs since they are currently offering attractive rates of at least 8.25% for more than a year and 9% for more than two years.
As for real estate, do not take a home loan in the first few years since you should not tie up your funds in an investment that is highly illiquid and prevents you from diversifying in other assets. Besides, you may want to jobhop and shift cities in the first few years, so it will be unfeasible to buy a house. Wait for a few years before taking on this responsibility.
Beware
Watch out for the following investing pitfalls to protect your hard-earned money. Your uncle or cousin will always have a word of advice, but check before you follow them. So, if you have just started working, your tax is likely to be really low and buying a Ulip may not be a good idea: it saves 2,000 as tax, gives inadequate protection, low returns and a lock-in period of five years. Remember the IT boom and the resultant nosedive by the Internet stocks? Follow the herd and you are most likely to go down with it. Invest according to your needs, objectives, risk appetite and based on your research. Each time there is an IPO, there will be ads telling you all that is good about the company. Do not fall for these; trust your own research.
AMIT
KUMAR AND RIJU MEHTA ETW120716
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