Investment Strategies for Young People




According to Facebook Insight 49% of the people who visits this site are between 25 to 34 years. So we thought of writing Investment Strategies for young people & here it is. You may be  unmarried or recently married or may be on the verge of starting a family. You might be new to professional life or settling in your career. Also you may or may not have bought a house. If you are in these parameters go on to read….

Generic Solutions

At the seed stage of life if you inculcate the right strategy in handling finances, you will lead a very comfortable life. You should list down their financial goals and make a financial plan. Construction of a house without a blue print is dangerous; so one must plan before you really act. One can take help of professional Financial Planners to give them a right direction. Make sure that all financial products should be taken on NEED based analysis and one should clearly avoid products that offer mixture of needs life investment with insurance etc. We have tried to provide a road map on financial management but they are generic in their approach. The actual decision should be based on their situation.

Insurance for young people

You should opt for Term Insurance only, for at least 15 times of your annual income. For example, if the income is 5 lacs a year, the sum assured should be Rs.75 lacs. Term insurance for such amount may cost around Rs. 10-12000/- depending upon his age, health and habits.  He should avoid any other kind of Life Insurance or Unit linked insurance plan. If there are no depended no need of term plan also. Accidental and Mediclaim Policy if not provided by employer should be taken separately.

Property Investment

One should look for property investment only if one is going to stay in such house for at least next 10 years. There is really no hurry to take immediate decision.

Emergency Corpus

The person at such age at times live on credit and by the end of the month, many of them are short of cash. One should start putting some amount in Short Term Funds to create an Emergency corpus of at least 6 months expenses. Avoid 100% reliance on credit cards. Develop habit of using cash or debit cards. In movie Shuarya, K K Menon says “agar jindagi udhar pe chal rahi hoti hai to sachai door ho jati hai”. So reality check is very important.

Financial Investment

You should open a PPF (Public Provident Fund) account as soon as you get into job even if you are investing through EPF (Employee Provident Fund). We are not suggesting young investors that they should put the maximum amount permissible which is Rs.70000. But one should open the PPF account and just put little bit so that at least the account completes its lock-in period as soon as possible.

Also one must start SIP (systematic Investment Plan) in Diversified Equity Funds. This should be at least 10% of your monthly income.

Start Saving for Retirement

You should not think that he/she is too young to start thinking of retirement (after all we are not Rajnikanth who can defy age and health problems). We just want to say that even a very small contribution towards retirement corpus at this stage would become a huge amount at the time of retirement as you have the POWER OF TIME in hand. At later stage, time cannot be compensated by investment huge amount also. SIPs in Diversified Equity Funds are the best option for such planning.

Loans for young people

Loans like Education Loan or Home loan are good but in case one takes loan for buying expensive Car or exotic holidays that is a wrong approach. Also use of credit card should only be to substitute handling of cash  and ease of payment and strictly it should not be used as tool to get loan.

Mistakes young investors should avoid

1.       Investment Linked Insurance (ULIP)

2.       Spending on WANTS/DESIRES rather than only needs

3.       Investing in Liabilities and not Assets

4.       Making Portfolio similar to your parents

5.       Not giving importance to financial literacy

6.       Being conservative investor at this stage of life

Feel free to add your views on above mentioned points.

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{ 47 comments… add one }
  • Vasudha Goyal December 18, 2010, 10:06 AM

    Hemant

    Very nice article. I have shared it with all my friends.

    • TFL December 18, 2010, 11:10 AM

      Thanks Vasudha,

      Knowledge increases by sharing.

  • D C Agrawal December 20, 2010, 11:41 AM

    This is really a very good article those who have recently started a job or recently have married and have small kids or no kids,
    I suggested if any young guys who have married and have kids,
    Pl.open a Minor PPF a/c and invest Rs 500/- on his/her birth day and also start SIP of Rs 1000/- per month or more as your pocket permit.

    • Hemant Beniwal December 20, 2010, 1:07 PM

      Thanks Mr Agarwal

      SIP & PPF are best way to invest – no one should avoid or delay these investments.

  • sharath December 22, 2010, 9:03 PM

    Hemanth, looks like you got the value for the term insurance in the example wrong – 15 times 3 lacs is 45 lacs not 75.

  • paritosh February 4, 2011, 6:10 PM

    HI

    MY AGE IS 27 YEARS AND I WANT TO INVEST RS 2000/MTH IN UTI RETIREMENT BENIFIT PENSION FUND FOR 30 YEARS TO GET AROUND 30000/MTH PENSION AFTER 60 YEARS.

    IS IT A GOOD FUND OR you CAN SUGGEST ANY OTHER GOOD FUND.

    THANX.

    • Hemant Beniwal February 6, 2011, 10:21 AM

      Hi Paritosh,

      This is one of the biggest mistakes that you can make – we Indian’s think if name is retirement plan or pension plan it will help me in achieving retirement goal. If someone adds child plan with insurance or mutual fund we feel that now I don’t need to worry but this is a big mistake. Manufacturers play with emotions by bringing such names but you should be aware of such things.

      My suggestion is start learning about mutual funds & build your portfolio.

      • munish singh August 12, 2013, 2:16 PM

        Dear Hemant JI,

        This is what i like most that such type of guidance you give to the TFL user when they are going in the wrong direction .

        Thanks alot
        Regards,

  • paritosh February 6, 2011, 11:40 AM

    THANX FOR YOUR REPLY.
    I AM ALREADY INVESTING RS 7000/MTH IN DIFFERENT SIP FUNDS.MY AGE IS 28.I WANT TO INVEST IN SIP FOR 20 YEARS.AS I AM WORKING IN PRIVATE SECTOR I AM THINKING ABOUT SOME PENSION PLANS.HOW CAN I GET REGULAR GOOD PENSION?SHOULD I INVEST REGULARLY IN SIP FOR 20 YEARS AND THEN AFTER 20 YEARS PUT THAT MONEY IN SOME DEPT PLAN OR BALANCED FUND FOR RETIREMENT PURPOSE. KINDLY REPLY.

    • Hemant Beniwal February 6, 2011, 8:03 PM

      Hi Paritosh,

      Good to hear that you are investing through SIPs.

      Let’s understand this – which you have actually expressed in second part of your question. Right now you or anyone who is reading this article is young – this means you have to accumulate as much as you can through good products. No need to worry that what kind of products will give me pension when I will retire – In next 20 years we will see lot’s of new products emerging that will help us to get some regular income. Right now you should worry about accumulation of amount.

      Let’s take one example – you have to reach a destination that is 1000 km from your home. There are 2 ways to reach there:
      1. A slow train that directly reach there but take 2 days.
      2. You can take a fast train which will take you to mid-way & then there are lot of other options to reach your final destination. It will also save your 1 day.
      Which one will you choose – expenses are almost equal.

      1st one is your so called pension plans. Second one is right now you accumulate till retirement & then choose best option that is available at that time.

      Hope it clarifies your question – other than SIP you can also start some small contribution in PPF.

  • Chandrajit February 24, 2011, 11:58 AM

    Hi Hemant,

    Great article covering almost all the aspects. However I am very keen to know why you do not view or recommend property as a vehicle of investment.

    You have mentioned that we should buy property only if wish to stay there for 10 years. But what if we want to buy property solely for the purpose of investment ?

    We know that the prices of properties in big metros are already very high but in some small and medium cities the prices are still quite affordable (between 10 – 20 Lakhs) and also having good appreciation potential. What do you suggest ?

    • Hemant Beniwal February 24, 2011, 3:30 PM

      Hi Chandrajeet,

      Thanks you asked that – i wrote “There is really no hurry to take immediate decision.” & may be for the same reason what you mentioned in you comment. (HIGH PRICES) Be frank I can’t time the prices but still as buying house through loan is a leveraged investment – people should accumulate good amount through other financial investment & then take small amount of loan to buy house.

      We can never compare property prices by city as this depends on local business than anything else. So take a well thought decision.

  • Raghu March 10, 2011, 7:32 PM

    Hi Hemant,

    After reading this articles, now i understand difference between insurance and investment also both should not be mixed. PPF and SIP best investment plan for retirement.

    i’m 31 year old working professional in private company. Could you please clear my below confusion

    1. i need to your suggestion in accumalating Gold Coins ( 22Oct ) from Local or Brand Jewellery shop thinking i can get good returns after 15 to 20 years later or get the ornament done for my daughter who is 2 year old now.

    2. Which SIPs in Diversified Equity Funds plan good invest now?

    3. What is first claim Settlement means in Term Insurance Plan?

    Thanks & Regards,
    Raghu

    • Hemant Beniwal March 10, 2011, 7:51 PM

      Hi Raghu,

      In 1st case you can do it with your trusted jeweler – I will write one article on this very soon.

      for 2nd ques – To start with you can invest in HDFC Equity & DSPBR Top 100

      3rd point its not first claim settlement but claim settlement ratio.(check this blog on Tuesday to know how to choose term plan)

  • Bratindra April 26, 2011, 11:17 PM

    Hi Hemant,

    Thanks for this article..though I believe, I have come over here bit late.
    I am working for last 4 years in an MNC and my age is now 25 years.
    Still I dont have any savings or Insurance and I am running in credit as u have mentioned. My salary is 5.5lacs/yr and recently(this month only) invested in “Insurance”(BSLI Vision: 20 Yrs sum assured 7.5 lacs) for 30K/yr and paid a premium of 5K 1st time.
    No need to mention, I have realized my mistake after reading this. And I know many of my friends(already shared) will feel the same.

    It will be great if you can help in these points.
    1. Should I continue BSLI Vision or stop it?
    2. What about NPS where we can invest 10% of basic, but the annual charges of Rs.260 is baffaling me. I could not understand whether it is good way to invest?
    3. I have a medical coverage for 1lacs/yr from my employer for my parents and I. Should I think about any insurance now as I am still unmarried?
    4. I want to reach 1 lacs savings bracket and I have decided I will be puttin 50K/yr in PPF. What about rest 30K (as I have EPF)?

    Will be waiting for your help.

    • TFL April 28, 2011, 9:28 AM

      Hi Bratindra,

      It’s good that you learned you lessons – ya bit late.

      I have replied inline:
      1. Should I continue BSLI Vision or stop it?
      > My suggestion will be to discontinue it. (there is a free-look period of 15 days)
      2. What about NPS where we can invest 10% of basic, but the annual charges of Rs.260 is baffaling me. I could not understand whether it is good way to invest?
      >Read this
      http://www.tflindia.in/2010/06/new-pension-scheme.html
      3. I have a medical coverage for 1lacs/yr from my employer for my parents and I. Should I think about any insurance now as I am still unmarried?
      > Medical coverage of 1 lakh is not sufficient – increase your cover to 3-4 lakhs.
      4. I want to reach 1 lacs savings bracket and I have decided I will be puttin 50K/yr in PPF. What about rest 30K (as I have EPF)?
      > You can start Mutual Fund SIP in 2 ELSS funds.

      • Bratindra April 29, 2011, 12:52 PM

        Thanks a Lot Hemant for your help and suggestion. I think many a ppl like me will be beniffited with this suggestion…keep it up…SIR!!!

  • Deepak May 2, 2011, 3:58 AM

    Hi Hemant,
    You have mentioned “buying house through loan is a leveraged investment”. What is meant by “leveraged investment”?

    Thanks in advace 🙂

    • Hemant Beniwal May 5, 2011, 10:01 AM

      Hi Deepak,

      Leveraged investment means that you pay partially by pocket & rest through loan. It can me futures & options you just pay the margin but hold a larger quantity – so if price appreciates you money multiplies but in adverse situation you go bankrupt. Similarly when you buy a house you are paying partial amount through pocked & rest on loan – now think of a period when property price cracks down by say 30-40%.

  • Deepak May 2, 2011, 4:00 AM

    Also. the NPS is non-functional…

  • ANIL KUMAR KAPILA July 20, 2011, 9:29 PM

    Hi Hemant
    Even Rajnikanth is not immune to ageing and health problems. I share your views as for as investment in property is concerned. Recently I read one article by a financial planner in a personal finance magazine in which the author says that property as an investment is far inferior to equity as investment. He advocates that it is much better to rent a house than to buy it. My own personal experience is that these days the rents which you can get from a property are far less when you compare them with the value of the property.
    I have one request. Now you should consider writing one article for middle aged people like me who are in the middle of the pyramid.

    • Hemant Beniwal September 1, 2011, 10:50 PM

      Hi Anil,
      Will try to write one for people who are in Middle Age & also rent or buy a house.

      • ANIL KUMAR KAPILA September 2, 2011, 6:01 AM

        Thanks Hemant.

  • Namrata September 26, 2011, 12:14 PM

    Hi.
    Good to read. Encouraged me to invest in SIP.
    But when i counsulted an investment firm they offered me a lot number of SIP Options.
    I am earning 2.6/year. with plans to settle down next month.
    can you suggest me which SIP would be best suited for me.
    should i go for equity or debt.
    i have no intentions of taking mucj risk

  • fahmed October 30, 2011, 7:00 PM

    hi sir
    i m very much impressed by your views on investing.. i m a 34 year old having monthly income of 50000 INR. i m interested in investing in MF by SIP atleast 10000 INR monthly for long term. which equity funds can i choose and what will be sum allocation in each.
    i have also taken two LIC policies(jeevan Saral & money back policy) 3 years before for which i m paying a premium of 30000 & 37000 annually, respectively. shall i continue with these or i should think otherwise.?

    • ANIL KUMAR KAPILA October 30, 2011, 7:36 PM

      Hi Fahmed
      Please read the post – Best Mutual Fund For SIP.

  • Murali October 31, 2011, 12:51 AM

    Hi Hemantji,
    You you are against insurance policies? It also generates saving concept, covers risk and give survival benefit. There is no risk of principal amount invested in traditional policies whereas in mutual funds there is a risk of principal amount too.

  • NANDU January 2, 2012, 9:52 AM

    NICE………………..

  • RADHA May 28, 2012, 11:24 AM

    What’s the procedure or formalities need to follow to invest in PPF. I am working private cmpy, age 40’s but till date not followed this. I knew many colleagues went to this and now the exposure made me interested to go with.
    Last year only noted in the yearly PF slip found my name without the initials.

    Could you help me about procedure to have in PPF and about name without initials, any problem will be met on settlement (at any stage), if so how to go with.

  • RADHA May 28, 2012, 11:31 AM

    I have forgetten to discuss about TERM Plan – read an article there are TERM Plan with option of returning PREMIUM Amt after completion of TERM Plan to the holder. Is this avail in the market.

    • Hemant Beniwal May 28, 2012, 9:14 PM

      Hi Radha,
      Such policies are available but my suggestion will be going for term plan that pay you nothing if you survive.

  • Rajesh Kumar June 5, 2012, 3:27 PM

    Good article for young people.
    I know that post office and banks offer PPF accounts.
    Can anyone please let me know the difference between them?

  • nilesh June 12, 2012, 7:44 PM

    Great follower of yours,
    My age is 25yrs recently started working. I took LIC jeevan anand in first month itself with a sum assured of 15 lac and bonus benifits of 37 lac after 23 yrs period. I am new to Investments Please suggest me a investment plan to achive targets of a normal new generation youth in future .

  • nilesh June 12, 2012, 7:57 PM

    I am 25yrs invested in Jeevan anand LIC policy sum assured 15L and bonus on maturity appox 37L . Please provide me with investment plans to meet all general needs You can be generic in your approach I am confused about Investments. I am a great follower of your and trust you. hope you will give a stisfying reply. thnx a lot.

  • jackson June 26, 2012, 4:01 PM

    hi,

    I am 23 yr old, i earn 24k per month. Am paying 13k per month for my personal loan and 2k per month for LIC. Suggest me in which form i can invest for both short term and long term. Am ready to invest 2-4k per month but am confused and do not have a clear idea in which to invest.. can u plz guide this young invester??

    • Hemant Beniwal June 27, 2012, 10:52 AM

      Hi Jackson,
      For long term goals you can start SIP in diversified equity funds.

  • Sudheer July 3, 2012, 7:09 AM

    Hi Hemanth,

    Your article is really good. I am 24 years old, I earn 5 lacks per anum. I still have 1.5 lacs of education loan. I am paying 20 K /month for it so within this year it will be over.

    As per your article i wil open Term of 1 crore which comes around 1200/month for smoker. and PPF account.

    1) i am currently putting 10k/month in FD term deposit for 390 days in Kotak which gives 9.4% interest. I have decided to put 10K in FD every month at least for the period of 10 years. is it good decision?

    2) What do you say about investing in gold every month?

    I was checking apple ipad online. i dropped that plan after reading your artilce because it was just a desire and not necessity. I already have android and not using it properly :). i realised it..

    Thank You
    Sudheer

  • Mohan Kumar September 3, 2012, 9:53 PM

    Hi Hemanth,
    You give a lot of information on investments which are very useful. I am a 27 year old and earns around Rs.30 K per month. I am paying an education EMI of Rs.5K per month and a bike EMI of Rs 3.5K per month. Can you suggest some investment options in SIP’s and others.

  • Mohan Kumar September 3, 2012, 10:00 PM

    Please help me with the following details:
    1) What is the procedure to start SIP
    2) What are the best SIP’s

  • Tejal October 21, 2013, 2:29 PM

    hi Hemant,
    Thanks for sharing such an eye opening knowledge for young people like us.
    I am 23 yrs old and having income of 3.3 lacs/anum.
    I want to invest some part of my income in ELSS through SIP.
    can you plz suggest me Top ELSS plans for year 2013?
    awaiting your reply.

  • Ranjini February 17, 2015, 1:25 PM

    Name :Ranjini
    Age:36
    Dependent :3.6 year old daughter

    Net income/pm: 72000

    Home loan: 22800
    House hold expenses: 16000

    Investments made so far:

    FD:10 lk
    NSC certificates: 40000
    LIC : 4 lk
    Health insurance : cmy company will take care, I don’t have one
    Gold: 4 lk
    PPF : 5000/month
    RD:1000/month
    Shares: 1.5 lk
    MF: 5000/pm
    Axis Equity Fund(SIP 1000/pm)
    HDFC Top 200 fund (SIP 1000/pm)
    DSP Blackrock Microfund(SIP 1000/pm)
    Franklin India Smaller Company Fund(SIP 1000/pm)
    Reliance Pension fund (SIP 1000/pm)

    Financial goals:
    Daughter’s education-25 lk
    Daughter’s marriage-25lk
    Retirement-1 cr
    Land purchase-18 lk

    I can cut my expenditure by another 2000-3000. Please suggest where to put rest of my savings so that I
    can achieve my goals

  • Raj Mehta September 22, 2016, 3:28 PM

    Hi, you shared great strategies with us. This is really a very good article for those who are beginners. You include all of the essential aspects that are important. Thank you so much to give knowledgeable information.

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