With the employment market flush with well-paying jobs, it’s not uncommon to see youngsters taking home hefty pay packets these days. While sky seems to be the limit for disposable incomes, the major chunk goes into spending rather than investing. Many are missing out on the economic boom in the country due to the inability to recognise the importance of investing or due to lack of knowledge.
Take, for instance, Sandeep Kamat, a 25-year-old executive working with an MNC insurer. While he takes home a princely Rs 38,000 per month, he has made absolutely no provisions for channelising these funds towards right investment avenues. Despite not taking any action now, he hopes to buy a house of his own in a plush locality — which could cost around Rs 70 lakh — in the next five years.
Considering that he has no dependants and comfortably manages to save a sum of Rs 20,000 every month, after allocating Rs 18,000 for family and personal expenses, he would have been able to reap rich returns had he invested this amount in the markets till now. That would have helped him a great deal in his quest for acquiring his dream house. But as they say, better late than never. Experts say even if he starts investing now, he can save enough in the next five years to fund his aspirations.
Says Kartik Jhaveri, director of financial planning firm Transcend India: “Since he is capable of investing Rs 2,40,000 every year and has no dependants, his only objective should be to create wealth. There needn’t be any other primary or secondary objective. Also, he needn’t worry about volatility in the markets as he can afford to take risks.”
According to him, Sandeep should consider investing directly in equities, as the best way to earn money is to invest in stock markets. If he cannot do so, then he can go for equity-oriented mutual funds.
“To avail of tax exemptions under section 80C, he can invest Rs 1,00,000 in Equity Linked Saving Schemes (ELSS) through SIP (systematic investment plan). ELSS falls under the category of diversified equity investments. Hence, opting for such schemes would ensure he achieves the dual objectives of obtaining tax benefits as well as making highly productive investments,” he reasons.
This tranche of Rs 1 lakh forms about 40% of the investible surplus.
“Out of the remaining, 30% of the funds can be invested in mid-cap funds and the balance 30% can go towards sector-based equity funds like power, infrastructure and the like,” advises Mr Jhaveri. Given this portfolio, Sandeep can achieve his objective of saving enough in the next five years to fund the down payment of a property worth Rs 70 lakh.
“If he gets a return of 20% per annum over the next five years, he would have Rs 20 lakh in his kitty by the end of that period. If the investment yields a return of 15% pa, he would have Rs 18 lakh, and in the worst case scenario, if the portfolio generates a mere 10%-pa return, he would still have about Rs 15.5 lakh,” explains Mr Jhaveri.
Adds Akhilesh Tilotia, director, Park Financial Advisors: “In the next five years, apart from buying a property, he might plan to get married as well, and would thus have to set aside some more money, say an additional Rs 5-10 lakh, for the purpose. He can consider adding instruments that carry relatively lesser risk to his portfolio in order to provide the right balance.”
If Sandeep intends to save for his marriage and property, he would need Rs 20-25 lakh — marriage expenses plus down payment — at the end of five years. Mr Tilotia recommends a portfolio made up of equity funds and low-risk instruments like fixed deposits and longer tenure debt mutual funds in the ratio of 2:1. Such a mix, he believes, would be ideal for saving enough to fulfil Sandeep’s objectives.
An important point that you need to bear in mind is that financial plans need to be reviewed periodically. So, Sandeep can choose from these solutions. And you can take a cue from what the experts have recommended for him. If your income level and aspirations are alike, you can resolve to start investing on similar lines now. After all, is there a better time than the New Year to put such important financial resolutions in motion?
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