Q. I am 35 and married with a 3-year-old kid. I work in the private sector. I would like to retire at 60 with a corpus of ₹ 3 crore. My present accumulated funds come to ₹ 38 lakh (including FD, PPF and LIC). I prefer to own an apartment in 5-6 years. Kindly guide me. My current CTC is ₹ 18.5 lakh.
A. If you can save about ₹ 40,000 per month over the next 20 years, and allow your present corpus to grow, you should be able to reach your goal of ₹ 3 crore assuming a return of 7%. You may have to dip into this corpus to pay for buying your apartment. In such a scenario, you will have to increase your savings in later years a bit. Take stock then, after seeing how much corpus depletes when you withdraw to buy your house.
We have assumed 7% return. But adding equities will help increase your chance of superior returns. You can consider investing in equity index funds to keep the portfolio maintenance and cost low and allow it to grow in line with equity market. The debt part can be diversified into options like the RBI Floating Rate Bond (7 years) and can be earmarked for buying a house. The remaining debt can also be considered through NPS if you need tax deduction. Continue your other investments and consider adding some quality corporate bond funds if you are familiar with mutual funds.
Q. I am a 76-year-old retired banker. My investment of ₹ 40 lakh is with a cooperative bank where I get 8.25% interest. I want to know if there is a threat to co-operative banks, in general. If so, where can I invest to get a regular monthly income?
A. While one cannot generalize, it is true that the risk of co-operative banks going bad is higher than that for regular public and private banks. History suggests the process of any takeover in case a bank goes bad is often delayed. Hence, the possibility of moratoriums being imposed (as for Lakshmi Vilas Bank) cannot be ruled out. Consider exhausting Post office Senior Citizens’ Scheme and PM Vaya Vandana Yojana. Park the balance in RBI Floating Rate Bonds and public sector bank, or large private sector bank, FDs. Lock into shorter periods with banks and renew when rates go up.
Q. I am 23 and have just started earning. I am confused as to where exactly I must begin investing.
A.This is a good age to start investing seriously. Exhaust the traditional options of EPF fo tax purpose and look at investing for the long term in mutual funds (MFs). If you are new to MFs, it is best to start learning about them so that you are not mis-sold products. You can otherwise keep it to equity index funds and avoid active funds entirely. But make sure you have a minimum 7-year view for this and expect the corpus to fall at times.
With debt, consider a combination of short-term deposits and long-term options such as the RBI Floating Rate Bond. You can also consider quality corporate bond funds once you get familiar with MFs. As your income grows, you can consider NPS for additional tax deduction and to save for retirement. Ensure you have good medical cover outside of the one given by your employer. If you have dependents, take a simple term insurance so that your family is reduced well for your income loss.
Q. I am a 21-year-old college student. I make a small sum via freelancing. Please suggest whether I want to go for equity or MFs.
A. Start investing a small sum in equity index funds if you can give this money at least 5-7 years’ time. Please note whether it is stocks or equity MFs, this is the minimum time frame you need to have. Else, stick to bank FDs. If you are familiar with stock markets and are willing to put in effort to continuously learn, track and review investments, start investing a small sum that you can afford to lose. Except you have good knowledge of technical analysis, do not attempt it. Instead read about businesses and their financials and try to pick stocks for the long term.
(The author is co-founder, Primeinvestor.in)
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