29-Year-Old Looking to Start Saving and Investing: How Can I Grow Passive Income?

Hello ji. I'm 29 years old. I currently have a take home close to 1 lakh. I have no investments as such, no quities, no nothing whatsoever. How do I get started with savings and investments so that I can grow a passive income as well. Kindly advise.

Ans: Hello;

Please take a good term life insurance and healthcare policy as protection cover.

1. Consider NPS for your retirement planning. If you invest 10 K per month in aggressive life cycle fund then you may expect a corpus of 2 Cr by the end of 60 years.(9% return considered)

2. I am sure you have EPF in your organization but would still recommend investing in PPF 12.5 K per month. Returns are lower but from stability and tax exempt nature point of view it is desirable.

4. Consider mutual funds for your other financial goals such as house, vacation, car purchase, kids education and marriage and even retirement.
Invest by making monthly SIPs for your target fulfillment.

Avoid direct equity exposure unless you do it under the guidance of an investment advisor or study yourself about fundamental/technical analysis.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: You are at an exciting point in your life, and planning ahead is a great decision. With your current savings and income, you have the foundation to start building a strong financial portfolio.

Let's look at the different aspects of your financial journey and how you can achieve your goals.

1. Current Financial Snapshot
Monthly in-hand salary: Rs 75,000
Recurring Deposit: Rs 15,000 monthly
Savings: Rs 1 lakh
Goal: Increase income to Rs 1.5-2 lakh per month in 2-4 months
Goal: Accumulate Rs 1 crore in 4-5 years
Goal: Marriage at the end of next year
You have ambitious goals, and with careful planning, they can be achieved.

2. Income Growth Plan
You are already on a good salary and looking to double your income soon. Aiming to increase your income is always smart. You should:

Upskill: Focus on building skills that are in demand in your field. Take online courses or certifications.

Job Opportunities: Explore career opportunities that match your experience and skillset.

By increasing your income, you will have more to invest and save, helping you achieve your goals faster.

3. Savings and Emergency Fund
You currently have Rs 1 lakh in savings, which is a good start. However, building an emergency fund is essential for your financial security. Aim for 6 months of expenses saved in a liquid form.

Emergency Fund Goal: Around Rs 4.5-5 lakh.
This will protect you from unexpected expenses, like medical emergencies or job loss.

4. The Recurring Deposit Strategy
While recurring deposits (RD) are safe, they do not offer high returns. The interest is often below inflation, which means your money loses purchasing power over time.

Recommendation: It’s better to invest the Rs 15,000 into a combination of equity mutual funds instead of an RD.
Equity mutual funds have historically delivered higher returns over the long term, especially if you are looking for wealth creation.

5. Investment Strategy to Accumulate Rs 1 Crore
To accumulate Rs 1 crore in the next 4-5 years, you need to focus on high-growth investments.

Here are some essential steps:

Increase Monthly Investment: Consider starting with a SIP (Systematic Investment Plan) in actively managed equity mutual funds.

Diversify your Portfolio: Don’t put all your money in one fund. Spread it across large-cap, mid-cap, and small-cap mutual funds. Actively managed funds provide higher growth potential than index funds due to active stock picking by fund managers.

Avoid Direct Funds: Direct funds often require constant monitoring and decision-making. Investing through a Certified Financial Planner will help you gain access to regular funds, where the advice and monitoring are taken care of by experts.

A disciplined approach with monthly investments can help you get closer to your Rs 1 crore target. As you increase your income, increase your SIPs as well.

6. Marriage Planning
Marriage brings additional financial responsibilities, and it’s good to plan in advance.

Set a Budget: First, estimate the cost of your wedding. This will give you clarity on how much you need to save.

Short-term Investments: Since you need funds in a year, consider investing in short-term debt mutual funds. These offer better returns than a savings account or FDs while being relatively low-risk.

Marriage Fund: Start saving an additional amount dedicated to your marriage. For example, setting aside Rs 20,000 per month can help you build a sizable wedding fund.

7. Tax-Efficient Investments
As your income grows, your tax liability will also increase. To minimize your tax burden, you should:

Invest in Tax-Saving Mutual Funds: ELSS (Equity Linked Savings Scheme) mutual funds offer the benefit of wealth creation along with tax savings under Section 80C.

Utilize PPF and NPS: Public Provident Fund (PPF) and National Pension System (NPS) are great options for tax-saving and long-term financial planning.

By investing in these instruments, you can reduce your tax liability and still grow your wealth.

8. Retirement Planning
Although retirement may seem far away, it’s never too early to start planning. You can use the power of compounding to build a large retirement corpus.

Start an NPS Account: This will allow you to save for your retirement in a tax-efficient manner while also growing your corpus.

Increase SIPs Over Time: As your income increases, allocate a portion of it to your retirement fund through SIPs. The earlier you start, the larger your corpus will be due to compounding.

9. Insurance for Financial Security
Protecting your family and your future with adequate insurance is important.

Life Insurance: Make sure you have term insurance that covers your life for at least 10 times your annual income.

Health Insurance: Ensure you and your spouse have adequate health insurance coverage. A cover of at least Rs 5 lakh is a good start. Don’t rely on your employer’s health cover alone.

10. Review and Adjust Regularly
A financial plan needs to be dynamic. As your salary increases and your goals evolve, make sure to:

Review your investments every year. Adjust your SIPs and asset allocation based on market conditions and your income.

Stay Focused on Long-term Goals: Market volatility is normal. Don’t panic during market corrections. Keep your focus on long-term wealth creation.

Finally: Creating Financial Freedom
Building wealth requires discipline, patience, and regular investments. You have already taken the first steps by saving and starting a recurring deposit.

Now, by switching to equity mutual funds, creating a diversified portfolio, and saving for your marriage, you are setting yourself up for financial success.

Remember to keep increasing your investments as your salary grows. With time and discipline, your goal of Rs 1 crore in 4-5 years is achievable.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment