Ask Mint Money | Taking loan to invest is against the principle of investment

I am 30 years old. I plan to get married in October. I want to retire in the next 20 years and want to build corpus for my retirement. My wife will not be working so I need to take care of her needs too. Currently, I can invest around Rs 15,000 per month. Where should I invest?

—Rohit Arora

It is good that you want to plan for your future. You need to ensure that you save to your maximum ability. You need to gauge your saving potential every year based on your income and expenses and the same will change accordingly. You should logically aim to increase your savings by the inflation rate or increase in salary, whichever is higher. Then, there will be a few years, when you will not be able to save due to high expenses. Similarly, there will be years when your saving potential will be much higher as you go up the professional ladder. All in all, you need to plan and hence save not only for your retirement, but also for your family post marriage.

As the savings is to be done for a goal which is 20 years away, you can consider equity as an investment class. However, you need to be aware of the risks associated with the same. You can start creating your corpus with balanced funds. HDFC Prudence, HDFC Balanced Fund are funds with consistent performance and can be considered. You can also consider dynamic funds such as Franklin Templeton India Dynamic PE Ratio FoF.

My salary is not enough to make substantial investments. At present, I deposit Rs 2,000 per month in a recurring deposit, which gives 8% returns. I have the benefit of taking crop loan, where I can borrow money from the bank and repay within one year and the interest payable is 7% per annum. I am a beginner in stock market but can invest Rs 2-3 lakh for a year. Where should I invest?

—Sachin Kambli

You should invest what you can afford, which means you should use your own funds to invest. Taking a loan and then investing is against the principle of investment and is a big no. The principle of leveraging yourself and investing in stock market carries a very high capital risk, wherein you are putting your funds at stake. What happens if the stock market does not perform and your capital erodes which is possible and is actually happening in current times?

Also, any equity investment needs to have a long percolation period. How do you plan to pay the interest in such a scenario? And in case the principal erodes how do you plan to repay the same?

Simply put, you need to earn 15% on the stock market to make your return equal to your recurring deposit return. Hence, your return needs to be much higher than 15% to really offer you any real benefit.

Moreover, you are a novice in stock market. To make it tougher, your horizon is one year, which is too short a period for equity investment.

Surya Bhatia, certified financial planner and principal consultant, Asset Managers

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