Worried about how to handle your money? Here are some solutions.

I invest in the stock market but my friends tell me I am chasing 'paper profits'.

What's the difference between investing in property as opposed to equity?
Which of the two gives us better returns over a five to seven year period?
Where is the risk greater?

- VPL

It is a matter of perception. Property prices also move up and down. We have seen the dizzy heights in 1994 and the crash afterwards. Since property is visible and has a physical presence, it gives a sense of holding an 'asset'. 

The disadvantages of property investment over equity are many. 

Property represents a large chunk, and is therefore not flexible to meet any sudden requirements you have. You can sell any portion of your shares with ease. 

Property appreciation is also only on paper, unless you actually sell. And it can prove emotionally tough to do so.

You cannot sell discreetly. You may, therefore, not get the market price, if the buyer knows that you want out. You can sell your equity shares at market price, any time, absolutely anonymously.

If you live in the property you buy, you earn no income. You however keep spending on maintenance, repairs, decoration, refurbishing and the like. Equity is maintenance free. 

My view is that property is more of paper, because I have known very few who sell and make a profit on their property. If they did so, it is mostly only to buy another property :).

• Want to switch your home loan?

Age: 25 years

Marital status: Single, planning to get married within a year to a working girl.

Net take home: Rs 25,000

Goal: One child, retirement at 40

Current loans: Home loan of Rs 9,500 per month

Current investments: Public Provident Fund, National Savings Certificate, diversified equity funds, Equity Linked Saving Scheme, insurance

Right now, equity is around 30% to 40% of my savings, but I think over a period of time it should only decrease.

Should I invest in gold or commodities?

- Jitin Arora

I personally feel that retirement at 40 is too early, unless you plan to run your own business.

Having said that, at your age, your focus must be to grow your wealth.

Equity gives you a chance to do that. 

Commodities are highly cyclical and this is not an investment opportunity for retail investors, except in the case of gold. 

Make sure you have provided for expenses that come with starting a family.

• Is it a good time to buy gold?

I am 23, earning a monthly take home of Rs 32,000. I would like to do my MBA from the US after four years.

I need to save around Rs 50 lakh (Rs 5 million) for this goal.

I can avail of a bank loan of around Rs 20 lakh (Rs 2 million).

Where should I begin?

- Subodh  Nair

Three years is too short a time to be able to accumulate Rs 30 lakh (Rs 3 million) from a saving of, say, Rs 25,000 a month. 

Unless you manage a 75% return on your investment, it may not be possible to achieve that kind of growth. 

Equity markets and Initial Public Offerings have been providing good returns, but the kind of returns you seek may not happen unless you get lucky. 

In an effort to get that fortune at the end of the rainbow, you may make several mistakes in your choices and this could drag you down. More risky is the possibility that when you need the money, if the market is correcting (a temporary downturn when share prices have been steadily rising), you may have to sell at a loss. 

Using the three years to work towards a good GMAT score that can get you a scholarship seems like a good option to me.  The return on that investment could be much higher. 

In the meanwhile, use a product like a balanced fund. This is a mutual fund that invests in stocks as well as fixed-return investments. This will give you the advantages of equity without too much of a risk. 

Keep transferring your gains periodically into a short-term debt fund (funds that invest in fixed-return investments), so you are not caught with too much risk when you need the money.

Uma Shashikant is a well-known Knowledge Management Consultant.

Illustration: Dominic Xavier

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