Q. I am an 18-year-old currently investing in an SIP of ₹2,500 per month. I earn ₹6,000 per month and want to diversify my portfolio, but I am confused about where else to invest it.
Sanghamitra S
A. As a young investor, we presume you have started SIPs in equity funds. If you have a time frame of more than 5 and preferably over 7 years, consider investing in a combination of Nifty, Nifty 500 and Nifty Midcap 150 index funds, as your savings grow. You can also add PPF for your tax-saving needs as it will give you deduction under Section 80C and also provide some debt exposure with a safe government option.
Q. I am 19 years old. I still do not earn anything. But I want to have a clear idea about mutual funds and investment in the stock market. I want to acquire concrete knowledge about investments in mutual funds and the stock market so that I can invest later.
Soumyadip Guha
A. It is good to know that you want to learn about investing at a young age. You can consider reading books such as Let’s Talk Money by Monika Halan and You can be rich too: With Goal Based Investing (P.V. Subramanyam and M .Pattabiraman) to know the basics of money and financial planning. You can go to mutual fund websites to know the basics of mutual funds.
Understanding the stock market comes only by observing and investing. Start with reading business newspapers and try to track a few companies, their annual reports, quarterly results and news on them. Go to websites like the one from Professor Aswath Damodaran to seriously learn how to build valuation models. If stock market isn’t your thing, stick to mutual funds.
Importantly, do not get too swayed by the ‘easy money’ talk that you will hear all around you, once you get into this world. Like any other journey, the financial journey also takes time to travel. There will be no short cuts that social media may want you to believe.
Q. I am a 22-year-old new graduate about to join a private firm. I will get ₹60,000 in hand as salary. I want to buy health insurance for my family as well as life insurance for me. Since I have very little understanding of finance, please suggest how and what I can do within my capacity.
ANANT KUMAR
In investment in general and insurance in particular, it is prudent to start young. Correctly, your first stop is health insurance and you should explore what your employer is offering. Usually, your family members can also be covered under your employer’s group health policy and you will find that the coverage is reasonably good and the premium, very competitive.
If your employer does not offer health insurance, please buy an independent hospitalisation policy from a general insurance or health insurance company, preferably one you have dealt with before and with whose services you are comfortable.
If you are looking for fresh options for insurers, spend a bit of time reading up to pick the right company. What you need is a company large enough and financially strong enough to sustain paying claims over decades. It should have a reputation for paying claims fairly and swiftly, while offering good customer service and policy options. Track solvency ratios for financial strength and claims settlement ratios for the first two factors and word of mouth from your friends and family circles for the latter.
Take a view on how much coverage you will need and your premium-paying ability.
If you are taking coverage for your parents, then make that a separate cover or you will pay a higher premium for yourself too on account of their age. If you need to cover younger family members, namely wife and children, that can be in the same policy. One way to stretch your premium value is by taking a floater policy if you are able to take the view that the floater sum insured will be sufficient for all claims made by all the insured people in a policy year.
As for life policy, the best advice we can give you is to take a no-frills term policy. Decide the sum assured on how much premium you can afford now, and you can always supplement it with another term policy once your needs and affordability increase. As for the term of the policy, decide it based on the projected age and financial conditions of your intended beneficiaries.
For example, if your parents are in their early fifties now and you want to ensure they are supported till their time, let us say mid-80s, then take a term policy for 35 years, that is till your age 57. Or round it off to your age 60 and so on. Similarly, if you want the policy to support your wife and children as well, make the appropriate calculations.
Remember, a term policy gives you only life coverage, and some may offer you return of premium on maturity.
Once that is done, you have created protection for your family and can invest the rest of your money with a view to maximising returns without upsetting basic protection. Or, indeed, you can spend your money with a little less tension!
(Vidya Bala is co-founder, Primeinvestor.in K. Nitya Kalyani is a business journalist specialising in insurance and corporate history)
