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Should a 25-year-old invest in gold and mutual funds for high returns?

Nitin

Nitin Narkhede  |18 Answers  |Ask -

MF, PF Expert - Answered on Sep 09, 2024

Nitin Narkhede, founder of the Prosperity Lifestyle Hub, is a certified financial advisor with eight years of experience in helping clients design and implement comprehensive financial life plans.
As a mentor, Nitin has trained over 1,000 individuals, many of whom have seen remarkable financial transformations.
Nitin holds various certifications including the Association Of Mutual Funds in India (AMFI), the Insurance Regulatory and Development Authority and accreditations from several insurance and mutual fund aggregators.
He is a mechanical engineer from the J T Mahajan College, Jalgaon, with 34 years of experience of working with MNCs like Skoda Auto India, Volkswagen India and ThyssenKrupp Electrical Steel India.... more
Sumukh Question by Sumukh on Sep 07, 2024Hindi
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Can Investment in Gold and Mutual Funds Give High Returns??

Ans: Dear Sumukh,
Thank you for your question about investing in gold and mutual funds. Both of these investment options have their merits, but they work differently and suit different financial goals. Let's explore how they can potentially deliver returns.
1. Gold as an Investment
• Potential Returns: Historically, gold has been seen as a hedge against inflation and currency fluctuations. Over the long term, gold prices tend to rise, but the growth is usually moderate compared to equity-based investments. In the last decade, gold has provided returns averaging 6-8% per year. However, in times of economic uncertainty (like during the pandemic), gold prices surged due to its status as a safe-haven asset.
• Volatility: While gold is a relatively stable investment during periods of economic distress, its prices can be volatile in the short term. It's best suited for long-term portfolios or when you want to diversify and protect your investments from inflation.
• Forms of Gold Investment:
o Physical Gold (Jewelry, Coins, Bars): This involves storage and making charges.
o Gold ETFs or Sovereign Gold Bonds (SGBs): These are better options for investment, offering ease of trading, tax benefits, and interest on SGBs.
2. Mutual Funds as an Investment
• Potential Returns: Mutual funds, especially equity mutual funds, can offer much higher returns than gold over the long term. Over the last 10-15 years, equity mutual funds have provided average returns of 10-15% per annum, depending on the market conditions and the type of mutual fund.
o Equity Mutual Funds have higher growth potential but come with greater risk. These funds invest in stocks of companies, and their performance is directly linked to the stock market.
o Debt Mutual Funds are safer and provide more stable returns (typically 6-8%) but with less growth potential compared to equity funds.
• SIP (Systematic Investment Plan): One of the most popular ways to invest in mutual funds is through SIPs. This method helps mitigate risk through rupee-cost averaging and can lead to substantial returns if done consistently over the long term.
Which One Offers Higher Returns?
• Short-Term Perspective: Gold might offer stability in the short term, but mutual funds, especially equity funds, generally outperform gold when it comes to growth over the long term.
• Long-Term Perspective: Mutual funds, particularly equity mutual funds, are more likely to deliver higher returns over time. Gold can be a good hedge and part of a diversified portfolio, but it's less likely to deliver substantial returns by itself.
Ideal Strategy:
• Diversification: It’s a good idea to diversify your investments between mutual funds and gold. You could allocate a portion of your portfolio (e.g., 10-15%) to gold for safety, while the majority can be invested in mutual funds to maximize growth.
• Risk Profile: If you’re comfortable with market fluctuations, equity mutual funds could be a better choice for high returns. If you prefer safety, a combination of debt mutual funds and gold might be a better strategy.
Conclusion:
• Mutual Funds have the potential to give higher returns than gold, particularly over the long term, thanks to the growth of equity markets. In Mutual funds with High Risk you can earn up to 40% returns, where as at low risk you can get 6 to 9 % returns at debt funds. At Moderate risk you can achive up to 15 to 25% returns.
• Gold, on the other hand, is a safer, long-term investment that can protect against inflation but typically offers moderate returns. Golds can give you on and average of 10 to 15 % return over long horzons.
It’s essential to align your investments with your financial goals, risk tolerance, and investment horizon. You might consider consulting a financial advisor to help create a balanced investment plan.
Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 21, 2024

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Hello Sir, Are gold MF not a great idea? Or are there better ways in the market than MF to invest in gold like SGB, ETF, etc? Or is gold investments itself in our portfolio not recommended or not necessarily needed? Really helpful if we can get a general understanding on investment of commodities like gold, silver, etc. Thanks.
Ans: Gold Mutual Funds are an excellent way to invest in gold without the hassle of buying physical gold. They invest in gold ETFs, allowing you to benefit from gold's price movements. These funds are managed by professionals, which adds a layer of expertise to your investment. Gold MFs are convenient, as they don’t require a Demat account, making them accessible for most investors.

Advantages of Gold Mutual Funds

Professional Management: Experienced fund managers handle the investments.

Ease of Access: No need for a Demat account; you can invest directly through your bank or mutual fund distributor.

Diversification: Gold acts as a hedge against inflation and adds balance to your portfolio.

Why Choose Gold MFs Over Other Gold Investments?

Gold MFs offer the convenience of systematic investments through SIPs, which can help average out the cost. Unlike physical gold, there are no worries about storage or safety. While Sovereign Gold Bonds offer interest, Gold MFs provide liquidity and flexibility, which is crucial if you might need to redeem your investment quickly.

Final Thoughts

Gold Mutual Funds are a solid choice for adding gold to your portfolio. They offer a hassle-free, professionally managed way to invest in gold, balancing your portfolio and providing protection against market volatility. If you’re looking for a simple yet effective way to invest in gold, Gold Mutual Funds are the way to go.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Milind

Milind Vadjikar  |347 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
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Now I'm 43 years old, but next 5 year's I need 3cr with best mutual funds to invest and son education, marriage and my retirement, currently I have housing loan commitment. 70lakhs, how should I close my loan ASAP and I should have 3cr in my hand. Kindly help me, I'm in scary situation, I'm working in private sector 95k my take home and current home loan emi is 63k, 4500 recently started investment through groww app in parakh Parikh small fund, 12500 in PPF etc, kindly help. I'm completely in debt trap.
Ans: Hello;

General Comments:
People always delay retirement planning for later stage but this is not ok.

Because when you are young the investible surplus amount maybe less but you have the biggest resource, time on your side.

A mere 25K monthly sip can achieve 3 Cr in 20+ years

Query Specific Comments:
If you need this corpus in 5 years then you need to make a monthly sip of 3.55 Lacs Minimum to reach 3 Cr corpus in 5 yrs.(modest return of 13% considered).

Focus on improving your earning because then you can earmark larger amounts for investing towards your goals.

Also try to prepay the home loan as early as possible through EPF corpus or some asset sale.

Do not panic if you diligently pre-close the home loan you have ample time to invest and create a comfortable corpus for your goals.

Continue investing in MFs with increasing allocation, PPF to reach your goals.

Happy Investing!!

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

...Read more

Milind

Milind Vadjikar  |347 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
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I am 24 years old and earn a monthly salary of Rs.65,000. I am interested in investing some of my funds for future financial security and am also planning to marry in two years. As I have no prior knowledge of investment, I would greatly appreciate guidance on this matter.
Ans: Hello;

First and foremost buy a good term life cover including riders for critical care and accident benefit.

Ensure that you can top-up the sum assured later when you grow your responsibilities after marriage.

For retirement planning you should consider investing in NPS. If your office provides it well and good but otherwise also you can open NPS account and contribute regularly for financing your retirement. It's an E-E-E type of scheme. Charges are quite low and you can decide to select allocation to the asset classes like equity, corporate debt or sovereign bonds as per your risk tolerance. It allows limited withdrawal before 60.

If you decide to contribute to NPS per month an amount of 20 K, it will grow into a corpus of 6.51 Cr by the time you are 60 years of age.(A modest return of 9% is considered)

For all other goals such as marriage, house, kid's education, car, vacation you can use mutual funds as your mode of investments.

If you do a monthly sip of say 15 K into a pure equity mutual fund then at the end of 5 years you may expect to receive a corpus of 12.72 L considering moderate return of 13%.

Happy Investing!!

You may follow us on X at @mars_invest for updates.

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
Money
Hi Gurus I'm 39, married and no kids, sole breadwinner in the family. My salary is 1.2 lakh per month and investing in mutual funds (since 2020) through SIP as below and step up investment 10-15% every year. Current corpus stands at 14 lakh. I have 10lakh in my PF account and I get another 5 lakh from gratuity. Mirae Asset tax saver fund 5k Parag parikh tax saver 3k Quant elss 3k Canara robecco small cap 5k SBI small cap 5k Tata digital India fund 5k I have parked 20 lakhs in debt fund and FD which I'm planning to use it to buy a flat within a year. Every month I keep aside 15k towards savings and emergency fund. I move it to debt fund, FD and I invest small portion of my bonus in existing MFs as lumpsum. My goal is to accumulate 2 CR by the time I turn 50 and need suggestions and plans to achieve the same.
Ans: You are 39 years old, married, and the sole breadwinner. Your monthly salary is Rs 1.2 lakh, and you have been investing in mutual funds since 2020. Your investments include a combination of tax-saving mutual funds, small-cap funds, and a sector-specific fund. You have also parked Rs 20 lakh in debt funds and fixed deposits for buying a flat within a year. Additionally, you have Rs 10 lakh in your Provident Fund (PF) and Rs 5 lakh in gratuity.

You have set a goal to accumulate Rs 2 crore by the age of 50. This is an achievable goal, but it will require some adjustments and strategic planning to optimise your savings and investments.

You are also setting aside Rs 15,000 each month towards an emergency fund and savings, while reinvesting some of your bonus into mutual funds. Let's go step-by-step to achieve your goal while ensuring financial security along the way.

Current Investment Strategy
Your investment portfolio includes:

Three tax-saving mutual funds
Small-cap mutual funds
A sector-specific fund
Rs 20 lakh parked in debt funds and fixed deposits for a future property purchase
Your current investment strategy is diversified across equity and debt instruments. This diversification is good, but there is room for improvement in your equity mutual fund selection and tax efficiency.

Analysis of Current Investments
Equity Mutual Funds
Small-Cap and Sector-Specific Funds: Small-cap funds can provide high returns over time but also carry higher risks. Over-exposure to small-cap funds can make your portfolio volatile, especially as you near your retirement goal. A sector-specific fund, while offering focused growth, can also be risky if the sector underperforms.

Tax-Saving Funds: While tax-saving mutual funds (ELSS) provide tax benefits, there may be an overlap in the holdings of your ELSS funds. Additionally, ELSS funds have a 3-year lock-in period, which reduces liquidity.

Debt Funds and FDs
You have wisely parked Rs 20 lakh in debt funds and fixed deposits, which ensures stability and liquidity for your property purchase. However, investing large amounts in fixed deposits may not be the most tax-efficient strategy in the long run due to the high tax on interest income.

Suggestions for Achieving Your Rs 2 Crore Goal
To accumulate Rs 2 crore by the age of 50, you need a more optimised approach. Here are the steps:

1. Review and Adjust Your Equity Allocation
Increase Mid-Cap and Flexi-Cap Exposure: As you are still 11 years away from your goal, consider shifting a portion of your investments from small-cap and sector-specific funds to more balanced options like mid-cap and flexi-cap funds. These funds offer a balance between risk and return, providing more stability than small-cap funds while still offering high growth potential.

Reduce Sector-Specific Fund Exposure: Sector funds can be volatile. Consider reallocating your investment in this fund to more diversified equity funds like flexi-cap or large-cap funds. These funds are less volatile and provide more stable returns over time.

2. Reassess Your Tax-Saving Funds
Optimise ELSS Investments: You already have multiple ELSS funds, which may result in overlapping holdings and lower diversification. You could consolidate your ELSS investments into one or two well-performing funds. This will simplify your portfolio and improve returns while still offering tax benefits.

Consider the Lock-in: Keep in mind the 3-year lock-in period of ELSS funds. If liquidity is a concern, consider reducing your ELSS exposure once you’ve maximised your Section 80C limit.

3. Focus on Regular Funds over Direct Funds
Investing through a certified financial planner (CFP) in regular funds is better than investing in direct funds by yourself. A CFP can provide ongoing advice, portfolio rebalancing, and support during market fluctuations, which is crucial for reaching your Rs 2 crore goal.

4. Build a Strong Emergency Fund
You are already setting aside Rs 15,000 per month towards savings and your emergency fund. Aim to build a fund that covers at least 6 to 12 months' worth of expenses. Given your Rs 50,000 monthly expense, this would mean an emergency fund of Rs 3 lakh to Rs 6 lakh.

Continue to park this money in debt funds or fixed deposits for easy liquidity. This will safeguard you from any unforeseen expenses while ensuring that your long-term investments remain untouched.

5. Bonus Investment Strategy
You are already investing your bonus into mutual funds as a lump sum. This is a good practice, but consider utilising this money strategically:

Top-Up Your Existing SIPs: Rather than investing the entire bonus in one go, you could use it to top up your SIPs in your existing mutual funds. This will average your investment cost and reduce market timing risks.

Boost Equity Allocation: If your risk appetite allows, allocate more of your bonus towards equity mutual funds. This can provide higher returns in the long run, contributing significantly to your Rs 2 crore goal.

6. Step-Up Your SIPs Annually
You have mentioned that you step up your SIPs by 10-15% every year. Continue with this approach, as it aligns well with your growing income and inflation. This will accelerate your wealth accumulation and keep your goal on track.

For instance, a 10-15% increase in SIP amounts every year can make a significant difference to your final corpus. By increasing your SIPs, you will also take advantage of compounding and market growth.

7. Debt Fund Considerations
You have Rs 20 lakh in debt funds and fixed deposits. Once you buy your flat, this money will likely be reduced. However, after the purchase, you should maintain a portion of your savings in debt funds as part of your overall asset allocation.

Debt funds provide stability and reduce risk, which is essential as you approach your retirement goal. A balanced portfolio of equity and debt is necessary for sustainable growth.

8. Retirement Planning
To achieve Rs 2 crore by the time you turn 50, you need a mix of aggressive growth in the early years and risk mitigation in the later years.

Increase Equity Exposure for Now: As you have 11 years until retirement, continue focusing on equity funds for growth. However, once you are within 5 years of your retirement goal, gradually shift a portion of your equity investments to debt funds to protect your capital.

Avoid Real Estate Investments: Since you are planning to buy a flat within a year, avoid additional investments in real estate. Real estate is illiquid and may not provide returns aligned with your retirement timeline.

Maximise Provident Fund Contributions: You already have Rs 10 lakh in your PF, and this will continue growing with your monthly contributions. Provident Fund provides a safe and stable return and should remain a core part of your retirement corpus.

9. Tax Efficiency
As your investments grow, consider tax efficiency:

Tax on Equity Mutual Funds: Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. Be mindful of these taxes when planning withdrawals.

Tax on Debt Funds and FDs: Interest income from fixed deposits is taxed as per your income slab, which is less tax-efficient than equity investments. You can reduce your tax burden by keeping longer-term investments in equity funds and shorter-term savings in debt funds.

Final Insights
With proper planning, accumulating Rs 2 crore by the age of 50 is within your reach. You are already on the right track with a balanced approach to savings and investments. However, minor adjustments in your mutual fund selection, better tax efficiency, and maintaining a strong emergency fund can further optimise your strategy.

Your commitment to stepping up your investments and regularly reviewing your portfolio will help you stay on track. Be consistent with your SIPs and disciplined in maintaining your long-term focus.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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