Become Independent in your Financial Investment
By: Deepti Bajaj
Tags: Financial Planning, Investment, Indian Investor, Investment Portfolio, Finance

Usually this time around the year, we think about investments. These investments are usually tax saving investment and many people do not think beyond this. However, you should know there are two ways to become richer — first, earn more money (obviously) and second, save more wisely.

While no blog can help you achieve the first objective — please help yourself achieve this!

Coming to second objective: I have worked in financial sector for more than a decade and can tell you saving wisely works for persons in all income brackets. In series of blogs, I am going to guide you my way of managing my own portfolio. I still consider myself as callow investor; however, I am hoping my limited experience can be a good starting point to you.

So, what are your options?

Before we address this question, you need to know what your risk appetite is. Ok, no complex theories, just answer the following:

Q1. Are you saving for some purpose?

No, I am free bird I have liabilities, but no particular goal in mind Oh, yes of course

Q2. Are you comfortable investing in stock market?

Very comfortable I can try No, not at all

Now coming back to original question, following are the easily available options:

Bank Savings Account — why this is even an ‘investment’? Because some people still like to keep significant in hand cash, yes in 2021… And even after demonetisation! Bank Fixed Deposits or Recurring Deposit — Well known conventional sort of investment Mutual Funds — This one comes with lot of options: Liquid, Debt, Equity or Hybrid National Saving Certificate (NSC) — Post office savings scheme Gold or Silver — Solid physical investment in gold or silver Stock Market — Direct equity investment through Demat account NPS or PPF — Long term investment with guaranteed returns Real Estate — Capital Gains through investment in property; involves high amount of investment Insurance Plans — Traditional or Unit Linked plans with savings element

But why I asked two ‘stupid’ questions above then? Because your investment choices are related to above two ‘stupid’ questions. That also brings us to our second section.

How should I choose?

One should choose their investments in view of their goals and risks involved in the investment. Ohh yeah… That’s why those questions! Anything new here?

Yes, ‘diversification’ is a fancy word in investment world and desirable too. Hence, ideally you should invest in multiple instruments. But how? Here you go…

My suggestion would be to categorize investment and invest as follows:

If your answer to ‘stupid’ questions is both 1’s: First of all compliments for feeling like a free bird. Now, ideally all your investment can’t be in stock market, so basis your age, you may apply following thumb rule:

Category 1: Gold/ Silver & Equity (Equity Mutual Fund plus Real Estate) = (95 — Your Age)%

Category 2: Debt (PPF or NPS, Debt Mutual Funds, Bank Deposits, NSC) = (Your Age)%

Category 3: Liquid Funds (Saving Bank Account, Liquid Mutual Funds) = 5%

If your answer to ‘stupid’ questions is both 2’s, or 12, or 21, or 31, or 32: You are a wise kind of person, who wants to take calculated risk. You may possibly have loans or other expenses to bear, hence, following change in thumb rule for you:

Category 1: Gold/ Silver & Equity (Equity Mutual Fund plus Real Estate) = (75 — Your Age)%

Category 2: Debt (PPF or NPS, Debt Mutual Funds, Bank Deposits, NSC) = (Your Age+10)%

Category 3: Liquid Funds (Saving Bank Account, Liquid Mutual Funds) = 15%

If your answer to not-so-‘stupid’ questions is both 3’s, or 13, or 23: You are risk averse kind of investor and would like to keep maximum investment in Category 2 above. However, do keep 5% to 15% liquid portfolio (basis your liabilities).

Additional Point: For all those who have any particular short term goal in mind for their investment (say within 3–4 years horizon), your preferable investment would be Category 2 or Large Cap Mutual Funds. For long term goals — just follow the above suggestions! That’s what we all are here for.

Final Points

The above suggestion are broad indications only. Basically to give you comfort on how far you can go in each category. It will be very difficult to maintain these percentages at all point in times, so don’t panic if you are here or there a bit.

Managing your own portfolio may seem time consuming initially but it is much more rewarding in long term. Most of the investment agents are driven by commissions, and rightly so because it’s their living! But I can assure you, if in your hands, your investments can earn much more. It’s like your first new car… Somebody might be a good driver but you would like to drive yourself because there is no other way you can learn to drive it!

By now you should ask one question — where the hell is insurance? Well, that’s tricky. That needs lot of more writing. I will cover that in my next blog.

And I will also cover Mutual Funds, Stock Market, NPS. I can’t think of more. In case you have any more topics for me to cover, please comment.