I am 23 years old and have been working for the past two years. I earn around Rs.20,000 per month. My monthly expenses are around Rs.10, 000. In the last two years, I have managed to save close to Rs.1 lakh, which is lying in my savings bank account. Where and in what proportion should I invest and save this money more efficiently?
It is indeed good to start saving at such a young age and so early in your career. The dynamics of your age will make you have short-term goals such as buying a motorcycle/car, higher education and going forward, marriage. It is also possible that you haven’t planned for any particular goal. Based on your specific need and their respective horizons, investment can be made across various asset classes. Also, you need to provide for liquidity in the portfolio for any contingency need. Currently, you come under the lower tax slabs and based on your tax saving or salary structuring, you may not have to pay any tax. To take advantage of the same, a portion of the funds can be invested in bank fixed deposits, which will also give you the advantage of liquidity and with the interest rates expected to go down, you can consider locking in at the existing interest rates.
You can also consider equity as an investment. However, this requires a longer horizon; ideally you should look at five years. You may want to invest a small amount in this asset class; here you should consider mutual funds (MFs). You can pick from large-cap and diversified funds. Birla Sun Life Frontline Equity and Franklin India Blue Chip funds have performed well in the large-cap category and Reliance Equity Opportunity in the diversified space.
You can channel your savings on a monthly basis via the systematic investment plan (SIP) route. This process can help you start building your corpus over the long term. For a horizon of around two years, you may consider monthly income plan (MIPs). As these investments take equity exposure up to 30%, you can take a shorter horizon. You can consider Reliance MIP in the moderate category and Birla Sun Life MIP II Savings 5 Plan in the conservative category. Overall these asset classes will suffice your needs. As you go along, you should be wary of falling in the trap of making quick money as wealth can be created only over a period of time and there are no short cuts.
Going forward you also need to plan for your health insurance and when you have responsibility with dependants, you should be also taking life insurance. We repeatedly say that term insurance is the best way to cover your life.
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