Question: I am a regular reader of Times of India swatantra segment.
I am 25 today and this segment helps us to learn a lot about savings and investments.
I generally see that tax saving examples or investment examples are of people who fall under high tax slab. Just wanted to know if People of my generation who have just started can also have such guidance from your
I have an annual income of 4.5lac and currently living with my parents. Want a systematic flow of investment plan for future wherein I can see growth.
My current investments include PPF, NSC, FDs and 12k annual in an equity scheme.
Vikas Agarwal’s reply
First let me appreciate that at this age you looks more aware than most of the investors. People should understand that concept of compounding is not only about money – it also applies to knowledge. Things you will learn about personal finance at young age will be more beneficial than if you learn these concepts in late 40s.
You Should Set Achievable Goal, and Celebrate. At the seed stage of life if you inculcate the right strategy in handling finances, you will lead a very comfortable life. You should list down your financial goals and make a financial plan. Construction of a house without a blue print is dangerous; so one must plan before you really act. One can take help of professional Financial Planners to give them a right direction. Make sure that all financial products should be taken on NEED based analysis. And enjoy each achievements, congratulate yourself, pat your shoulder and focus on next milestone.
As you mentioned right now you are staying with your parents – if they are not dependent, try to save at least 40-50% of your income for your Long Term & Short Term Goals. You can build emergency fund equal to 6 months expense – you can park thi amount in liquid fund.
If I assume that you don’t have any big short term goal – in that case you can think of diverting 60-70% of savings in diversified equity funds or ELSS if you have to save tax. PPF & FD contribution can be kept at minimum levels. You have right mix of assets but you should focus on Asset Allocation & rebalancing.
Asset allocation means dividing the ratio of asset classes like equity & debt for investments as per the risk and time horizon of investor. The weightage of each asset class is kept constant. Once you have made this portfolio you just need to rebalance it at pre-decided date. The profit in the asset class, which outperforms is booked & the proceeds are used in the asset classes, which underperform in that particular period.
Common mistakes that you should avoid at this stage – Mixing insurance & investment like Unit Linked Insurance Plan (ULIP), Spending on WANTS/DESIRES rather than needs, Investing in Liabilities like big cars & not Assets, Making Portfolio similar to your parents, Not giving importance to financial literacy & planning, being conservative investor at this stage of life or thinking I am too young to prepare for retirement.
If you have any questions – feel free to ask in the comment section.