Hello Mr. Vivek. I want to know what should be the split of our investments in terms of investment categories

Ans: Hello Mr Ashish,

First of all as an investor and also managing your family finances, you need to answer following questions before deciding on which instrument you want to invest

1) Goal or financial goal or purpose of doing investment.
This will matter a lot as a goal of child education and retirement needs to see with different perspective and also should have asset allocation and market cap exposure accordingly.

2) Time Horizon of your goals- this is very important as it will help you to select the asset class and it's allocation based on your time period of financial goals. This is where investor makes biggest mistake of misalignment of asset time cycle and goals time period. If you allign this properly, your journey will be quite smooth.

3) Optimum Return expectations on your capital invested-
If you are saving and investing for some better future to fulfill your goals offcourse you will ask something in return which should be respectable higher returns than inflation for long term period( more than 7 years). If you are investing in India than equity return assumptions and calculations should be based on 12% return expectations and debt it should be 6.5%. Remember that you should assume practical return assumptions ( not the highest or what your friend says) as you can put any number in the excel sheet for your mental satisfactionðŸ˜ƒ

4) Risk taken on your capital-
Risk is a very negative word being taken in india but actually it's the risk appetite and risk acceptance of an investor which makes his outcome/ returns favourable. Understand one thing that if you want high returns you have to assume high risk and there is no option for it or an investor has to be happy with sub optimal returns if he is not ready to take risk.

Risk according to me is the capacity of a person until where and when he will not have any palpation in his stomach and he can absorb the downside easily( both realised and majority of time unrealised).

You should remember one thing that after deciding on above parameters, TIME IN THE MARKET IS MORE IMPORTANT RATHER THAN TIMING THE MARKET. As an investor, wealth is created over a period of decade and have your allocation to equity accordingly and enjoy the journey of markets which is going to be up and down.

After looking at all these parameters you can think of taking allocations to equity mutual funds and decide how much allocation to equity mutual funds is comfortable to you. If you dont have any prior expertise in investing in mutual funds or equity markets, its better to hire an advisor to help you do that or start with allocation in Equity Diversified mutual funds which will help you to take exposure in stocks.

And after all that, i would say it's your behaviour and emotions management which will help you create wealth in the equity market.

I hope this helps. Happy investing

Ans: Hemanth, congratulations on your new job! Starting your career is a big milestone, and planning your investments early is a wise decision. Let’s dive into how you can allocate your funds across different sectors to create a balanced and growth-oriented portfolio.

Understanding Your Financial Goals

Before we jump into investment options, it’s important to understand your financial goals. Since you're just starting your career, you may have short-term goals like buying gadgets or a bike, and long-term goals like buying a house or retirement. Having clear goals will help you plan your investments better.

Building an Emergency Fund

The first step in financial planning is building an emergency fund. Aim to save 3-6 months' worth of expenses. This fund should be easily accessible, so consider keeping it in a savings account or a liquid mutual fund. An emergency fund provides financial security during unforeseen circumstances.

Allocating Funds for Investments

After setting aside your emergency fund, let’s allocate your Rs. 60,000 monthly salary. A good starting point is to follow the 50-30-20 rule:

50% for essential expenses (rent, groceries, utilities)
30% for discretionary spending (entertainment, dining out)
20% for savings and investments
Mutual Funds: A Core Investment Option

Mutual funds are a great way to start investing. They offer diversification and professional management, which are essential for beginners. Let’s break down the different types of mutual funds:

Equity Mutual Funds

Large-Cap Funds: These invest in large, well-established companies. They offer stability and moderate returns. Ideal for long-term goals.
Mid-Cap and Small-Cap Funds: These invest in mid-sized and smaller companies. They have higher growth potential but also higher risk. Suitable for long-term investment if you have a higher risk tolerance.
Sectoral/Thematic Funds: These invest in specific sectors like technology, healthcare, etc. They can offer high returns but come with higher risk. Good for investors with a good understanding of market trends.
Debt Mutual Funds

Short-Term Debt Funds: These invest in short-term fixed-income securities. They are less risky than equity funds and are good for short-term goals.
Long-Term Debt Funds: These invest in long-term fixed-income securities. They offer stable returns with moderate risk.
Liquid Funds: Ideal for parking surplus funds for short periods. They offer better returns than savings accounts with high liquidity.
Hybrid Mutual Funds

Balanced Funds: These invest in a mix of equity and debt. They offer a balance of risk and return. Good for investors looking for moderate growth with lower risk.
Monthly Income Plans (MIPs): These primarily invest in debt with a small portion in equity. They offer regular income with lower risk.
Benefits of Mutual Funds

Diversification: Spreads your investment across various assets, reducing risk.
Professional Management: Managed by experienced fund managers who make investment decisions.
Liquidity: You can easily buy and sell mutual fund units.
Power of Compounding: Reinvesting returns can significantly grow your investment over time.
Systematic Investment Plan (SIP)

A SIP is a great way to invest in mutual funds. It allows you to invest a fixed amount regularly, say monthly. Benefits of SIP:

Rupee Cost Averaging: You buy more units when prices are low and fewer when prices are high, averaging out the cost.
Discipline: Encourages regular saving and investment.
Flexibility: You can start with a small amount and gradually increase it.
Avoiding Index Funds

Index funds are passively managed and track a market index. While they have low fees, they lack the potential for higher returns that actively managed funds offer. Actively managed funds are overseen by fund managers who can adjust the portfolio based on market conditions, potentially leading to better returns.

Direct Funds vs. Regular Funds

Direct funds may seem attractive due to lower fees, but they require you to manage your investments actively. Regular funds, managed through a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) credentials, offer professional advice and guidance. This can be invaluable, especially for new investors.

Investing in Public Provident Fund (PPF)

PPF is a long-term savings scheme backed by the government. It offers tax benefits and attractive interest rates. It’s a safe option for building a retirement corpus.

National Pension System (NPS)

NPS is a retirement-focused investment option. It offers tax benefits and a mix of equity and debt investments. It’s a good option for long-term retirement planning.

Equity-Linked Savings Scheme (ELSS)

ELSS is a type of mutual fund that offers tax benefits under Section 80C. It has a lock-in period of three years and invests predominantly in equities. It’s a good option for tax-saving and wealth creation.

Health Insurance

Ensure you have adequate health insurance. Medical emergencies can be financially draining. A good health insurance policy protects you and your family from unexpected medical expenses.

Term Insurance

Consider taking a term insurance policy. It offers a high sum assured at a low premium. It ensures financial security for your family in case of an unfortunate event.

Gold Investment

Investing in gold can be a good way to diversify your portfolio. However, instead of buying physical gold, consider paperless gold options like Gold ETFs or Sovereign Gold Bonds. They offer better returns and are hassle-free.

Monitoring and Reviewing Your Portfolio

Regularly monitor and review your investment portfolio. Market conditions and your financial goals can change over time. Adjust your investments accordingly to stay on track.

Seeking Professional Advice

While it's great to have a basic understanding of investments, seeking advice from a Certified Financial Planner can be beneficial. They can help you tailor your investment strategy to your specific needs and goals.

Final Insights

Hemanth, starting your investment journey early gives you a significant advantage. By diversifying your investments and focusing on long-term goals, you can build a robust financial portfolio. Remember to regularly review your investments and adjust them as needed. With careful planning and discipline, you can achieve financial security and growth.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in