Hello Gurus,
I need some Guidance. I am a 24 year old male and Am currently working as consultant. I did Btech and MBA. I stay with parents so mostly no living expense
Total Yoe- 1
current CTC -10 LPA
In-hand - 68k post PF and Tax
A total of 9k in deposited in PF for me per month (Employee+Employer)
I Do Sip's of 14k per month (1 year return 25%, mix of many funds)
2000 NPS per month
I need some guidance on my investments. Am i doing it right. Should I plan my investments differently. Also please help me understand is my salary low. I get this feeling many times whe. I hear that people get handsome salaries at my age.
Ans: Your question is very thoughtful and shows a proactive approach towards financial planning. At 24, having completed a BTech and MBA, and securing a job as a consultant with a CTC of Rs 10 lakh per annum is commendable. Your current investments and savings strategies show a strong financial foundation. Let’s delve deeper into your situation, assess your current strategy, and explore ways to optimize your investments.
Understanding Your Current Financial Situation
Salary and In-Hand Income
Your current CTC is Rs 10 lakh per annum, with an in-hand salary of Rs 68,000 per month post PF and tax deductions. Additionally, Rs 9,000 is deposited into your PF account monthly, combining both employee and employer contributions.
Investments
You are currently investing Rs 14,000 per month in SIPs and Rs 2,000 per month in NPS. Your SIPs have yielded a return of 25% over one year, which is impressive. The NPS contribution adds to your retirement savings, benefiting from tax deductions under Section 80C and 80CCD.
Assessing Your Investment Strategy
SIPs (Systematic Investment Plans)
SIPs are an excellent way to invest in mutual funds. They promote disciplined investing, averaging out market volatility, and compounding returns over time. A one-year return of 25% is quite good, but it's important to evaluate these funds periodically. Diversifying your SIPs across different types of funds (equity, debt, hybrid) can balance risk and return.
Advantages of SIPs:
Disciplined Investing: SIPs encourage regular investments and help in averaging out the market highs and lows.
Compounding Returns: Regular investments over a long period lead to significant wealth accumulation due to the power of compounding.
Rupee Cost Averaging: Investing at regular intervals averages the purchase cost of units, reducing the impact of market volatility.
Recommendation: Continue with your SIPs but ensure you review and rebalance your portfolio periodically. If any fund consistently underperforms, consider switching to a better-performing one.
NPS (National Pension System)
NPS is a long-term retirement savings scheme, and your Rs 2,000 per month contribution adds to your retirement corpus. NPS also offers tax benefits under Section 80C and 80CCD, reducing your taxable income.
Advantages of NPS:
Tax Benefits: Contributions are eligible for tax deductions, reducing your taxable income.
Retirement Security: NPS ensures a regular pension income post-retirement.
Market-Linked Growth: Investments in NPS are market-linked, providing the potential for higher returns.
Recommendation: Continue with your NPS contributions. Consider increasing the amount gradually as your income grows to enhance your retirement corpus.
Evaluating Your Salary
Feeling that your salary is low compared to peers is common, especially when hearing about higher salaries in the industry. However, comparing salaries can often be misleading due to varying factors like job roles, locations, and additional benefits.
Factors to Consider:
Industry Standards: Research industry standards for your role and experience level.
Skill Development: Continuously upgrade your skills to increase your market value.
Career Growth: Focus on career growth opportunities within your current role.
Recommendation: Evaluate your salary against industry standards. Focus on skill development and career growth opportunities. If you feel underpaid, consider discussing it with your employer or exploring better opportunities.
Optimizing Your Investments
Diversification
Diversifying your investments reduces risk and enhances returns. Since you are already investing in SIPs and NPS, consider adding different asset classes.
1. Debt Mutual Funds
Debt mutual funds are less volatile than equity funds and provide stable returns. They invest in fixed income securities like bonds and government securities.
Advantages of Debt Funds:
Lower Risk: Less volatile compared to equity funds.
Stable Returns: Provide stable and predictable returns.
Liquidity: Easily redeemable, providing liquidity.
Recommendation: Allocate a portion of your investments to debt mutual funds to balance risk and ensure stability in your portfolio.
2. Balanced or Hybrid Funds
Balanced or hybrid funds invest in a mix of equity and debt instruments, providing the growth potential of equities and the stability of debt.
Advantages of Hybrid Funds:
Balanced Risk: Mitigates risk by diversifying between equity and debt.
Steady Growth: Provides steady returns with moderate risk.
Recommendation: Consider investing in balanced or hybrid funds to diversify your portfolio further and balance risk and return.
Emergency Fund
An emergency fund is essential for financial security. It should cover at least six months of living expenses to manage unexpected situations without liquidating investments.
Recommendation: Build and maintain an emergency fund. Allocate a portion of your savings towards this fund until it reaches the desired level.
Tax Planning
Efficient tax planning maximizes your take-home income and ensures compliance with tax laws.
Tax-Saving Instruments:
ELSS (Equity Linked Savings Scheme): Provides tax deductions under Section 80C and has a lock-in period of three years.
PPF (Public Provident Fund): Long-term investment with tax benefits under Section 80C.
Recommendation: Invest in tax-saving instruments like ELSS and PPF to optimize tax benefits and enhance your savings.
Regular Monitoring and Rebalancing
Regularly monitoring and rebalancing your portfolio ensures it aligns with your financial goals and risk tolerance. Market conditions change, and so do your financial needs.
Recommendation: Review your portfolio at least annually. Rebalance your investments if needed to maintain the desired asset allocation.
Seeking Professional Guidance
A Certified Financial Planner (CFP) can provide personalized advice tailored to your financial situation and goals. They offer expertise in investment planning, tax efficiency, and risk management.
Advantages of a CFP:
Expert Guidance: Provides professional advice and personalized strategies.
Regular Monitoring: Ensures your portfolio stays aligned with your goals.
Tax Efficiency: Helps in optimizing tax savings and compliance.
Recommendation: Consider consulting a CFP for a detailed financial plan and ongoing portfolio management.
Final Insights
You are on the right track with your investments and savings. Your proactive approach and diversified investments in SIPs and NPS are commendable. To further optimize your financial strategy, consider diversifying into debt and hybrid funds, maintaining an emergency fund, and efficient tax planning. Regularly monitor and rebalance your portfolio to ensure it aligns with your financial goals. Lastly, evaluate your salary against industry standards and focus on skill development and career growth opportunities. Consulting a Certified Financial Planner can provide personalized guidance and help you achieve your financial objectives.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
