I have switched to a new job with a considerable increase (about 65%) in salary. Should I increase my investments in mutual funds or equities immediately? I can take risk.
As a thumb rule of financial planning, you should try to maximise your savings. Hence, any excess of income over expenses should be put to good use—doing investments and creating asset blocks for achieving your financial goals. As you said, you have the risk appetite so you just need to make sure you have the capacity and all your goals are long term and there is no immediate need of funds. This will ensure that the high risk investments remain for long term as any equity investment need a percolation period of at least four-five years to give you the real benefit.
You should prefer mutual funds (MFs) to equities as there are many advantages. Financial expertise, flexibility, diversification, liquidity, transparency, low costs are few reasons which work in favour of MFs. You can also invest in direct stocks if you believe you can spend time in understanding the fundamentals and do adequate research.
I have invested about Rs 10 lakh in equity mutual funds through systematic investment plans (SIPs) over the last two years. I have an additional Rs 10 lakh in my bank savings account which I won’t need for the next three to five years. Where should I invest this amount? I have put Rs 5 lakh out of the Rs 10 lakh in HDFC FMP 370 days, but even that will mature by next October.
It is evident that your need of funds are long term. You have been conservative in your monthly savings as prima facie you have accumulated the funds in your bank. If that is the case, then in future you should increase your SIP-monthly investments. Your SIP’s may not be in the equity funds only. You can consider hybrid funds and dynamic debt funds to give you a balanced allocation.
You have given your portfolio the right mix by going for an fixed monthly income (FMP). If you want to remain in debt asset class, you may consider doing FMP of longer duration. Typically you have the option of one-three years available. You can also consider MIP (monthly income plans). These plans with up to 80% debt and 20% equity exposure are good options in the current scenario with the expectation that the interest rates will come down over the next few quarters. Similarly hybrid plans where equity is more than 65% and the balance is invested in debt offers a good mix of equity and debt. With a reasonable time horizon you may also consider STP (systematic transfer plan) in the equity schemes where you already have monthly SIP running. However, make sure you review your SIP portfolio once in six months and change your funds in case of underperformance.
Surya Bhatia is a certified financial planner and principal consultant with Asset Managers.
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