Know your risk profile and goal horizon before investing

The key is to ensure that the returns generated are able to outperform inflation and therefore it becomes a case of taking risks in the portfolio


Ramesh Pathania/Mint
Ramesh Pathania/Mint

I am 38 years old and have a 2-year-old daughter. I only have Rs.2 lakh in fixed deposits (FDs) and have not been able to save much till now. Recently I got Rs.10 lakh as my share from land sale of ancestral property. Kindly advise how to invest this for the following long-term goals:

a) daughter’s education and marriage

b) retirement fund.

My monthly salary is Rs.48,000 and saving is Rs.8,000.

—Mayank Kumar

It is never too late for starting investments. Yes, an early start gives you an advantage of creating a larger corpus, benefitting both from more savings as well as the compounding effect on the portfolio.

Before you start investing, it is important to understand your risk profile and the investment horizon. Investment horizon is already defined by you as long term, as the funds are primarily required for your daughter’s education and marriage corpus, along with your retirement needs.

So, the key is to ensure that the returns generated are able to outperform inflation and therefore it becomes a case of taking risks in the portfolio. Thereby, equity becoming an essential asset class.

Hence, what becomes important is your risk profile, i.e., risk-taking capacity as well as risk appetite. Based on it, you can determine the investment allocation spread between equity and debt assets.

There are three parts of your savings: existing corpus, funds received from inheritance and the regular savings from your income.

Existing corpus: It is currently invested in FDs. This can also act as a contingency or emergency fund and with your income in the lower tax bracket, you can continue with the same. At the same time, you do not need to add any further FDs.

Inheritance money: This is a large sum of money and you need to put it to good use. This will also give a head start for the years where you could not save. As this corpus is to be invested for the long term, create an asset allocation spread between equity and debt. For equity asset class, consider mutual funds (MFs) and use systematic transfer plan to invest in equities spread over a period of 1-2 years. While this does not assure any fixed returns, it does help you to tide over the market’s volatility to a certain extent.

Regular savings: The current savings, done out of your income earned, are on the lower side. At the same time, you are the best judge to take decisions about your cash flows.

So make sure you save to your maximum ability and try to increase the savings every year, based on increase in income.

As mentioned earlier, go for MFs as an investment vehicle and here you can invest in both equity and debt asset classes.

Start your monthly investments through a systematic investment plan (SIP).

Also, make sure you have adequate insurance for yourself, in the form of term insurance and health insurance.

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