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Business News/ Money / Personal Finance/  Your Questions Answered: Moving beyond FDs; starting to save after your first job; and investing in property

Your Questions Answered: Moving beyond FDs; starting to save after your first job; and investing in property

Every Monday, we try to answer some of your most pressing personal finance questions. It is time to make the most of your money! 

Your Questions Answered: Moving beyond FDs, starting to save after your first job, and investing in property (Image by Gino Crescoli from Pixabay)Premium
Your Questions Answered: Moving beyond FDs, starting to save after your first job, and investing in property (Image by Gino Crescoli from Pixabay)

1. I am 30 years old, unmarried and have no loans. I have a Rs 10.5 lakhs portfolio which is already down 2 lakhs in the last two months. With my extra savings, is it the right time to buy more, or should I wait until the markets fall more?

Chetan Prakash, Gurgaon

First, the long answer. You will almost always be better off with more time in the market, as opposed to trying to time the market. Statistically speaking, perfectly timing the market is nearly impossible. No one can really accurately predict if the markets will fall further, when and by how much. The smarter strategy is to make absolutely no assumption and invest as soon as you have the money. Our own research shows that investing immediately works better about 60% of the time. The short answer? Don’t worry about market volatility. Invest your savings right away.

2. I just landed my first job, and I want to start investing my savings right away. What's the minimum I should save up, how should I plan, and where do I invest?

Vidya Krishnan, Pune

Congratulations! And it is amazing to know youngsters who start saving and investing this early in their career. Keep in mind, that no matter how complicated it is made out to be, investing is actually easy. All you need to do is:

  • Invest as much as you can, and as soon as you can. Use the full power of compounding. The earlier you invest, the more you power your investments.
  • A good rule of thumb is to save and invest 20% – 30% of your income.
  • Invest in index funds. It is better than investing in individual stocks. It keeps you free from worries of tracking individual companies because someone else is doing it for you! Index funds are cheaper and are more likely to give you good returns.
  • Have a 10 year + view. Equity mutual fund returns have less variability the longer your holding period.

3. Does it make sense to invest in a residential property in Bangalore, or should I add to my SIPs and stay on rent forever?

Girish ML, Bengaluru

Let’s do math with some basic assumptions here. Say you are considering a 2BHK flat in Bangalore, that costs INR 60L. You will tap into your savings to pay INR 9L upfront as 15% down payment. You take a loan for 51L. At 8% interest, you will pay about INR 43,000 per month. In addition, you will pay for interiors from your savings, a maintenance of INR 1,500 per month and other expenses of maintaining the home. Let’s assume that these additional expenses get canceled with the income tax benefit you get on the loan.

At the end of 20 years, you would end up paying Rs 1.1 crore to own the home, in a now aging society, which probably is now worth about INR 1.5-1.8 cr. And don’t forget, living with the debt burden for 20 years.

What happens if you stay on rent?

If you live in a similar flat on rent, at about INR 20,000 per month. With a 5% year-on-year increase in rent, you end up paying about INR 80L.

The initial INR 9L you would have used as downpayment? You invested it as a lump sum in an equity fund. And you have a monthly SIP of INR 23,000 (considering you are paying 20k in rent already). What would this be worth in 20 years? Assuming 12% annual returns, it will be worth INR 2.3 cr.

Important to know that buying a home is not a financial decision, it is really an emotional one. So what will you do?

4. Of late, I have seen many "experts" and "influencers" go on about how FDs are a horrible investment idea. Is it really true?

Anurag Kumar, Ahmedabad

Remember what they say about the eggs and the basket? Always diversify your investments. Your market-linked investments have a potential for a great upside, but they come with high risks too. Fixed Deposits give you the assured returns, because they are not linked to market performance. Investing a portion of your money in FDs makes perfect investing sense in the following scenarios:

  • Parking your emergency Funds in FDs. Get better returns than the savings account, and you can withdraw your money within 24-48 hours when needed.
  • When you need funds within 3 years. For shorter time horizons, the market volatility risks are higher.
  • For senior citizens. They get the benefit of higher interest rates, sometimes upto 75 basis points. Moreover, at that age, it doesn't make sense to take the risk of market upheavals. Investing in non-cumulative FDs also gives a monthly income with tax benefits for seniors.

It is advisable to keep 20% of your investment in FDs.

5. I am 41 yrs, and want to move beyond FD and PF investments. Should I go for stocks or invest in equity funds?

Harikumar S, Coimbatore

Investing in stocks is easy, managing them is not. Ask yourself the following questions:

  1. Are you comfortable with the risks involved with investing directly into equities?
  2. Do you know the track record and trust the strategy of those who will advise you?
  3. Do you have the time to do the required research and build your own investment hypothesis?

If your answer to any of the above is a NO, you should allocate the majority of investments to mutual funds. Mutual funds give you the benefit of diversification, offer convenience and come with lower costs. To learn direct stock investing, take small steps in equity markets. Start with a small amount, do the grunt work. Familiarize yourself with the markets and develop your skills as an investor. You can then slowly grow your allocation in direct stocks.


Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

Kuvera is a free direct mutual fund investing platform.


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Published: 14 Mar 2022, 01:30 PM IST
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