I am 24 years old, and I have been working for two months at my first job. I don’t have a financial goal as yet, but I would like to make a reasonable portfolio by the time I am 30 years old. My monthly income is Rs.1.3 lakh, and expenses come to around Rs.20,000. How do I make my financial plan?
It is good to see that you want to start investing at such an early age. Goal-based planning is good, but equally important is to create the habit of saving and that is exactly what you will be doing. The advantage of this in the long run is the power of compounding, i.e., the longer you hold your investments, the more your interest will continue earning interest. As you go along in life, your income earning capacity will increase, and so will your responsibilities and the ability to save can change. So, this is a good time to ensure that you maximise your savings.
Further, you can also assume one of your goals to be maximising savings in the next six years. With age on your side, you can also consider taking risk in your investment planning.
But before you start investing, the key is to understand your risk profile. Prima facie, you do have a risk capacity but what you need to check is your risk appetite. Risk appetite is more about understanding your actions in times of adverse situation, i.e., how will you react if your investments meant for six years starts showing negative returns after only three months of investing?
There are many questionnaires available online which can help in understanding your risk profile. Based on the same, you can decide your asset allocation. Once you know how much spread is to be maintained between risk assets (equity) and low-risk assets (debt portfolio), you can identify the schemes where you would like to invest. As you have a fixed monthly income, the way to go forward is to start a systematic investment plan (SIP) wherein every month a fixed amount gets debited to your bank account on a fixed date, in a predetermined scheme. You can consider mutual funds for this. Here, within the equity category you can diversify your portfolio by investing in a mix of large-cap, multi-cap and hybrid funds. For the debt portion a combination of short- and medium-term debt funds are good options. Taxation will also work in your favour wherein the returns on equity portfolio, if held for more than 12 months from the date of purchase, is tax-free and the debt portfolio, if held for more than three years from the date of purchase, becomes long-term, and hence more tax efficient.
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