If your returns turn out to be higher than what we assumed, you will not need a steep amount to save.
Q. My monthly salary is ₹2,60,000 and I would like to invest ₹1,00,000 per month for my various goals. I have one mid-term goal (5 years) of about 30 lakh and three long-term goals a. 20 years – 50 lakh; b. 25 years – 4 cr.; c. 30 years – 2.7 cr. Please suggest some investment option along with the ratio.
A. We are not aware of what return expectations you have and whether you have based your goal amount on such return estimates. But kindly avoid any assumption that the current stock market return will continue. If we assume a 12% annualised return (which can come with about 60-70% equity investments) for the next 5 years, and a 10% return (as markets mature returns dwindle) for a 20-year period, and 9% return for the remaining goals, you will need the following monthly sums for your goals: ₹38,000 per month for your 5-year goal, ₹6,600 per month for your 20-year goal. ₹1.32 lakh per month for your 25-year goal and ₹15,000 for your 30-year goal. That totals to 1.91 lakh per month of savings. While you may not have this sum right away, start upping your savings every year gradually making sure the immediate goals are first met. That will free up more savings to deploy in future goals.
If your returns turn out to be higher than what we assumed, you will not need a steep amount to save. But since you do not have any control over the returns, the best you can do is keep your expectation toned down and save more steadily. For the 5-year goal, consider a 60:40 equity debt portfolio (assuming you have a moderate risk appetite). Use Nifty 50, Nifty Next 50 and Nifty Midcap 150 index based passive funds for equity and use short duration and ultra-short duration funds for debt.
For the remaining follow a 70:30 equity debt allocation. To the same index funds we mentioned add indices like Nifty 500 Nasdaq 100 and Nifty Low Vol index based funds/fund of funds. For debt it can be the above funds plus corporate bond funds plus PPF investments. Ensure your exposure to midcap funds or Nasdaq 100 funds are not over 10-15% each of your overall allocation as these are high risk and can cause your investments to swing up and down.
Holding index funds will ensure you do not have to actively manage them and you do not fall prey to any mis-selling. Do not try to look for winners every year once you have index funds. You will simply be earning as much as the market.
Q. I am a home maker. I would like to know if there are any online classes to teach the ABCs of financial planning? I would also like to know what equity funds are.
A. It is good to know that you wish to make a beginning with investing. You can consider reading books such as Let’s Talk Money by Monika Halan and You can be rich too: With Goal Based Investing (P.V. Subramanyam and M. Pattabiraman) to know the basics of money and financial planning. You can go to mutual fund websites to know the basics of mutual funds. Importantly, do not get too swayed by the ‘easy money’ talk that you will hear all around you, once you get into this world. Listen to audios or videos of market tips but know that – like any other journey, the financial journey also takes time to travel. There will be no short cuts that can sustain.
Q. I am a farmer having a yearly crop income of about ₹4.5-5 lakh (Rabi) and ₹6-6.5 lakh (Kharif), of which about ₹70,000 goes into instalment & interest of KCC & co-operatives each season. Other expenses are ₹80,000 for workers I hire on yearly basis (paid from rabi crop), ₹60,000 rabi crop expenses and ₹1,50,000 Kharif crop expenses. Additionally, about ₹15-20,000 house expenses per month and ₹15,000 per month for study of my son. Also ₹50,000 goes to HDFC Life policy each year from Kharif season. Now, for future, I am planning to build a house which would cost about ₹20-25 lakh in a period of 2 years and my son is demanding a new car as well of about ₹12 lakh. Could you please suggest me some plan, so that I can meet both the expenses without getting into some trouble in future.
A. For the time-frame that you are suggesting, we would not recommend equity markets. While the current returns may be alluring, if the market falls, the pain can be hard given your short time frame. You can at best invest 50% in recurring deposits of banks and some short duration funds for 50% of you corpus and invest remaining 50% in balanced advantage funds. If we assume a best case return of 8% (mainly from balanced advantage funds) you will still need to save ₹90,000 per month for the house goal. You currently have roughly ₹2.2-3.2 lakh per annum of savings, which translates to about maximum of ₹27,000 per month. We suggest you postpone the car purchase for now. The home purchase too may be pushed back further down, depending on when you are able to increase your savings.
Please note that balanced advantage funds can give negative returns over one-year period. For deposits, you can consider reputed small finance bank deposits or RDs for higher returns than traditional banks but ensure it is less than ₹5 lakh (maximum deposit insurance).
(Vidya Bala is co-founder Primeinvestor.in)
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