Finance for Non Finance persons;

 

Today young generation which is getting in new jobs or working from last 5-6 years never bothered about savings in past as they simply says that they will not save they will live in today not planning for future . After 2^nd wave of COVID-19 pandemic young generation get more attracted towards savings for securing their futures.

It is quite often to see that persons other than CAs, financial planners etc. are not good investors. This might happens as we all came from traditional families and As our traditional families will still prefer fixed deposits, Property purchases, Gold purchases and LIC. They will never ever go for other investment options available in the market such as mutual funds, stocks, bonds etc. So it is not always advisable to follow the traditional investment options as guided by our parents but try to explore other options available in the market. Our families always guide us to buy FD which can offer 6-7% of annual returns over the period of one year.

 Here are following few building blocks which will help to analyze the other options available in the market:-

Fixed deposit Vs Mutual funds:-

As we are not expert of studying balance sheets of companies and can’t ascertain volatility in the stock market as there are so many other factors which derive the market, so don’t burn your hand while going into the stock market and directly purchase the shares without any knowledge.

Now if you are young and age is between 24-30 and starting your career try to put 50-60% of amount earned into savings as you don’t have any liabilities at that time. Now put 80% of 50% savings into directly into index fund Mutual funds through SIP (Systematic investment plans) and remaining 20% into FD or you can say into debt funds. Mutual funds will give you annualized return of 13% and debt fund will give you returns of approx. 7-8%. So overall you will get 11-11.5 returns against 6-7% returns.

You have to keep patience to garner these gains as you keep in FD as it is out tendency that when we open a FD we will not check the daily returns on FD invested amount but when we invest in mutual funds and stock market we daily check the prices. So avoid that one and forget about the seeing the daily returns and keep investments for at-least 10 years. I will tell you will get returns in multifold.

Rs. 20000 to Rs. 120000:-

One of my personal example I will tell you in year 2008 when there was global recession and I was about 24 years of age my mom has given me Rs. 20000 for deposit in bank as FD by saying that this amount is of the three sisters and but instead of FD I invested into mutual funds on recommendations of bank branch manager and I don’t know even about the details of mutual fund and after returning the home I told them that I have purchases mutual funds instead of FD , hearing the same mom get angry and told me that she will take that money from me if anything happens to that amount and I said ok I will give if it gets down. Now even after 2012 value of mutual fund was below the purchased value and every time I came back to home from job (as I was working outside hometown) she enquired me the same question is your mutual funds has given returns or not?? And I have to face heat every time and keep my mom calm by saying that I will pay the amount. In year 2013 my investments starts giving return and now mom stops enquiring as she was earlier more worried about the other sister’s amount.

Now in year 2021 this Rs.20000 turn into Rs.110000 and paid them the amount without withdrawal from mutual funds and she was more than happier at that time. Now, this investment amount value is Rs. 120000. So you can see how mutual funds has offered returns even when I invested lumpsum amount and without analysis of available mutual funds. This mutual fund has given annualized returns of 13%.

Age-wise planning for goals and investments:-

In goals I am not taking about the amount required at a particular age as we can’t ascertain the exact amount required after a certain age. These are life goals such as starting a job, Marriage, House purchase, Vacations, Babies, Babies schools, Marriage of Kids and finally retirement.

(i)                 Young and Starting the job:-

We mostly start our carrier in age between 22-30 years so investment planning has been already started above during that age.

(ii)               Investments after marriage:-

We generally marries between 28-34 years so at that points since you have more responsibilities so your expenses may rise after marriage and if you both are working than your both income will multiply your savings. Now plan to save 30-35% from monthly savings and out of which 65% to be invested into Mutual funds and remaining into debt funds. You can keep on doing the same before your next milestone i.e. purchasing a house.

(iii)             Investments after purchase of house:-

Now when you purchase a house you will always buys a house with 20% more budget what you have planned earlier. So when you buy a house you stops your investments which isn’t advisable as you have to keep on doing the investments. You can lower down your investments to 5% of monthly income as this will help you generated more funds for future requirements and housing loans are cheapest loans and now offered at 6.75-7.25% and also provide tax benefits also.

If your aren’t looking for house or you have already have parental house then keep doing investments as mentioned above to strengthen your financials.

(iv)              Investments after Baby:-

  Now after baby initially 4-5 you don’t have bother too much about their education expenses you will keep doing investments in order to meet their higher education expenses. If you have housing loan going on along with baby then you have to do investments of 10% of your salary atleast. You have to keep on increasing the savings annually according to annual increase. This will meets your required expenses for kids’ education. Major amount you are required to spend on kids’ education will be when they will for higher studies i.e. after 15-16 years at that time you have already finished your home loan. So you can easily increase your savings by saving home loan installment amount directly in Mutual Funds and Bonds at that time you are advised to invest only 45-50% in mutual funds remaining in bonds or debt funds.

(v)                Marriage of Kids:-

Now next major expenses occurred when you plan for kids’ marriage. At that time you will be near your retirements and you can reap now advantage of savings which you done over the period of time. Now after kids marriage you can still plan your savings as this will help you to get smooth transition during old age. After Kids marriage your age may be between 52-60 years so you can reduce the exposure of equity and you can plan 20% of your savings into equity and remaining 80% into debt funds, FDs and other government savings available.

You should not buy any ULIP plan or any Insurance linked plan as never try to club insurance along with savings as by doing so you will not get the advantage of both i.e. neither full advantage of insurance nor any advantage of return on investments. ULIP plans will never give you return more than 6-8%. Instead of ULIP plan you can plan for term insurance in which you will get maximum insurance amount with minimum annual payment. Always plan to buy term insurance in early age as insurance premium will be minimum at time and you have to pay the same premium over the period of validity of term insurance. For investments methods has been already mentioned above.