Photo: iStock
Photo: iStock

If investment period is not adequate, risk of capital erosion becomes high

Even with long tenure of investments, there is no assurance of making good returns; it is only the probability of making an inflation adjusted return

I would like to know about investment options that are available for someone like me. I earn Rs20,000 a month.

—Pramod

It is good to be financially secured and to achieve it, you need to start saving and investing. It is recommended that you should know what you expect from your investments. While everyone wants to grow their money, how much risk you take defines the growth in your net worth. And here the investment horizon becomes critical as the risk asset surely needs a long term horizon. In case the investment period is not adequate, the chances of low returns or even erosion of principal becomes high. And even with long tenure of investments, there is no assurance of making good returns; it is only the probability of making an inflation adjusted return which is in the favour of investor. Hence, asset allocation becomes important, i.e., defining the exposure between debt and equity assets. It is also recommended that the investments should be linked to your financial goals as then you have a define target to achieve. The key to achieve all the above is to be disciplined and start investing early to get the benefit of power of compounding. And within the asset classes, in debt asset class, you can consider bank recurring deposit, PPF. And for equity, investing in mutual funds and a combination of large-cap, multi-cap funds is a good option. You can also consider hybrid funds popularly called as balanced funds if you want to limit your exposure in equity as the equity participation in this category is a minimum of 65% and typically it varies between 65-75%.

Please let me know what will be the amount of tax and other cesses that need to be paid for purchasing a property of Rs20 lakh in Delhi?

—Pooja S

For any property purchase or sale, there is an incidence of taxes payable to the government. Firstly is the stamp duty and transfer charges which is payable on the sale agreement. The same is payable at the time of registration and varies from state to state. In Delhi, the stamp duty is payable at 4% for women on the sale agreement value or the circle rate, whichever is higher (the rate is 6% in case the vendee is a man). At the time of recording the documentation with the registrar office, registration fees is payable and again it varies in each state. In Delhi, the registration charge is 1% of the total value of the sale deed and an additional Rs100 as pasting charges.

So for a property valued at Rs20lakh, the total tax payable is a sum of Rs80,000 as stamp duty (being a women vendee) plus Rs20,000 as registration charge along with pasting charge of Rs100 thereby making total cost as Rs1,00,100 payable in the forms of taxes.

I am 33. My salary is Rs50,000 and my monthly surplus is about Rs10,000. Where should I invest? I have an emergency fund of Rs2 lakh. I don’t have any investments in FDs, PPF, mutual funds, etc. I have Rs4 lakh in EPF and have two life policies: LIC’s New Bima Gold for Rs5 lakh sum assured (maturing in 2025); and LIC’s Jeevan Mitra-3 Cover with Profit. Its sum assured is Rs50,000 and it matures in 2026. I am a low risk taker.

—Name withheld on request

Any investment decision should be based on the investor’s investment horizon and risk profile. The rationale being for long term horizon, the investments can be made in assets with risk as they have the potential to deliver high returns—the key being to outperform inflation and for short term needs or investment horizon less than 3-5 years the investment strategy should be low risk and hence asset classes with high degree of safety. At the same time, this asset class at best will be able to match inflation leave aside outperforming the same. Hence asset allocation will ensure that you create a blend of portfolio based on your needs. Also, at this stage risk profiling becomes important to further fine tune the equity debt exposure.

You are holding the emergency corpus in your bank account and not even in a FD and in addition you have EPF and couple of endowment policies. None of these investments other than EPF has the potential to match or outperform inflation. As you are a low risk taker, the efforts should be to at least ensure the returns are inflation protected if not adjusted. It is recommended to have equity in the portfolio. You can start with lower allocation and start with 10-20% allocation towards it and that too via SIPs. You can start with a balanced fund along with a bank recurring deposit.

Surya Bhatia is managing partner at Asset Managers.

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