ot questions on investment?

Wondering how to invest if you are financially unstable?

Worried how you can support yourself if you want to study further? 

Our expert Uma Shashikant has the answers.

Age:  23

Family: Single

Income: Rs 10,000 per month.

Investments: Two mutual funds (Rs 10,000), shares (Rs 5,000).

Savings: Rs 4,000 every month -- in a Systematic Investment Plan (Rs 1,000), PPF (Rs 500), LIC [Get Quote] endowment plan (Rs 500).

Where must I invest the balance Rs of 2,000?

I started working four months ago and will continue for the next 15 months. After that, I plan to pursue my education. I am looking for a sizeable amount of savings so I need not trouble my parents to pay for my education.

- Wasim B

You have a short investment horizon of 15 months.

At the income level you mention, you may have no tax liability. There is, therefore, little reason to have a PPF.

The PPF is a 15-year account and you cannot withdraw the money for seven years. Keep that investment at Rs 500 a year to keep the account alive. 

At your age, I wonder if an endowment plan is necessary. I do hope the Rs 5,000 invested in shares is sound. It would have been better if the same were invested in a diversified equity fund.

If you have the risk appetite, increase your investment in equity. In a rising market, you might be able to grow your money sizeably. But 15 months is too short for equity.

Unless you are agile in booking your gains and moving them into a bank account, you may see your money lose value.

If you are new and unfamiliar with the markets, keep your money in a 15-month fixed maturity plan or fixed deposit where you will earn an interest of 5.5% to 6%.  

Age: 23

Income: Rs 2,24,000 per annum

Investments: Rs 25,000 (LIC) per annum for a life cover of Rs 500,000 and an accident cover of Rs 10,00,000. This investment will continue for 21 years.

I plan to do my MBA after two years, for which I will need enough money. How must I invest?

- Swarvanu Chatterjee

At your age and level of dependency, I wonder why you need such large insurance investments. 

Invest in a diversified equity fund and keep some money in fixed deposits and fixed maturity plans (mutual fund schemes that invest in fixed return instruments like bonds for a fixed period of time and return the money on maturity). Since you need the money after two years, equity could be risky for you. 

But if you have the inclination and the agility to book your gains and keep moving them into your fixed investment, you could use the bull phase of the market to make some money for your course.

It is safe to have about 50% of your money in a fixed deposit/ FMP/ short term fund, and stake only the balance in equity.  Use a mutual fund, perhaps an SIP, and don't take stock specific bets, however tempting they may be.

The good news: I graduated last April and have got my first job at Rs 18,000 per month. I have been assured a Rs 4,000 increase every year. My monthly expenses are only Rs 6,000.

The bad news: My dad closed down his business and sold his house to clear his debt. He still owes Rs 500,000 at a 14% rate of interest.

Now, I have to support my parents and buy some property to help clear this debt. How must I invest to get some financial stability?

- Ankith Mathur

You are right in thinking that you must first pay off the debt.

Unfortunately, with decreased interest rates, no investment option can give you a 14% return. 

Since your investment returns are likely to be lower than the cost of the outstanding debt, pay off the debt directly from your earnings. Even if it means paying Rs 10,000 per month, do it.

You can invest Rs 2,000 per month in the equity markets, where the possibility of getting a decent return is high. Given that you have a liability to pay off, I won't suggest anything more than that. 

Consider investing through an equity linked tax scheme, so that you can save some tax on this investment as well. Increase this investment as you see your salary increasing. 

Use all that you have to clear your debt and then chalk out a decent investment plan for yourself.

Desist from any get-rich-quick scheme, including investing in the market on tips. These may look very tempting, given your situation, but the risk is high and that is something you cannot afford at the moment.

Age: 27

Family: Single. No dependents.

Income: Rs 35,000 per month.

Investments: Shares (Rs 150,000), LIC policy (annual premium of Rs 37,000), pension plan.

Do you think I am over exposed to equity? Must I consider mutual funds instead?

I want a portfolio of Rs 1 crore (Rs 10 million) when I retire. I plan to buy a house next year, for which I will need a loan of Rs 30 lakh (Rs 3 million).

- Anupam Sharma

At your age, I would think you must use long-term investments in equity to augment your returns and achieve your goal.

By investing Rs 50,000 every year in equity, you can achieve your Rs 1 crore target over 25 years. 

It is crucial that you invest your money in a portfolio (not bet on stocks), keep investing year after year (month after month preferably) and not be taken in by the swings of the market. 

An SIP in a diversified equity fund will suit you best. Perhaps you can spread your investments over two to three mutual funds.

If you show the discipline of being in the market consistently, you should be able to make this happen. 

With your income, you can manage this level of saving as well as a house.

Age: 42

Family: Wife and 2 children, aged 4 and 7.

I lost all my money in a business venture. I have nothing now!

I stand to receive around Rs 10 lakh (Rs 1 million), but am not sure of it.

I may inherit some ancestral property worth Rs 30 lakh (Rs 3 million).

I have a job that pays me a gross of Rs 10 lakh (Rs 1 million).

1. Should I opt for PF (both employee and employer contribution will be deducted from my salary), as I can save on tax.

Yes you should. But keep the contribution to the minimum required. Do not increase the voluntary contribution. 

The rates of interest may come for revision and your savings could suffer.

2. What other investments should I go in for and how can I protect my children's future?

i. You must use the Rs 100,000 deduction that is available to make sure your taxable income remains at a lower level, even if your salary increases at a later date. Avoid moving into the Rs 10 lakh (Rs 1 million) + income slab. 

ii. Go for a pure term policy and be sure that you protect the education and upbringing of your children completely. Target for a term policy of Rs 25 to Rs 30 lakh. You can get it for a premium of about Rs 12,000 per year.

iii. Choose a child care plan which has both equity (shares) and debt (fixed return investments); begin an SIP for both children. Even Rs 1,000 per month will go a long way.  

iv. Open a PPF account and save about Rs 2,000 a month there. You get the tax advantage, the income is tax exempt and the return at 8% is decent. 

v. Invest Rs 2,000 per month in a tax saving scheme of a mutual fund to get some growth and save tax. 

vi. Do not over-extend yourself in equity until you have built some wealth. 

After about three years of saving and building some base, look at higher levels of equity, so that about 40% of your money saved is in equity. 

That is after you have accumulated savings and have been able to put aside Rs 100,000 at least, every year.

Illustration: Dominic Xavier

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Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.