The investments thread

avi

avi

Skilled
I thought it's good idea to have one thread fully dedicated to investments, savings, equity, stocks etc. If such thread already exists then please point to me.

I have started earning very recently and I don't know anything about investments/savings. Currently I have 4L in savings a/c and I won't be needing this money for next 3 years. Where do I invest it?
 
avi said:
Currently I have 4L in savings a/c and I won't be needing this money for next 3 years. Where do I invest it?
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:eek: 4L in one a/c. Buddy, 10% TDS to be deducted by bank. Invest in diff savings tool-FDs to retrict interest income not exceeding Rs.10,000/year/account.
Edit:- Bank FD, Company FD, Combo-Post MIS & Recurring A/c scheme are safest option. If interested, can go for depth / gilt mutual fund also.
 
Right this moment, start an FD for 2/3 months, whichever will give you an interest of 6 to 8 %. It will always be better than the interest earned by keeping the amount in the account as it is.
Decide on the exact investment later, short term/long term plans, diversifications etc. You can close the FD prematurely and even with the penalty it would be better than the savings a/c interest.
 
Doremon said:
:eek: 4L in one a/c. Buddy, 10% TDS to be deducted by bank. Invest in diff savings tool-FDs to retrict interest income not exceeding Rs.10,000/year/account.
Edit:- Bank FD, Company FD, Combo-Post MIS & Recurring A/c scheme are safest option. If interested, can go for depth / gilt mutual fund also.
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He will have to pay income tax irrespective of the bank deducting it themselves. These things will come under tax planning. and depth should be debt.

@OP, This is going to be a never ending exercise, you'll have to research a lot, understand the various investment options, their pros-cons. Your choices will sometimes fail too, learn from that and improvise, at this age you should be taking calculated risks depending on your liabilities.
There will always be a lot of fine print in investment options, don't commit to something just because a friend/relative/agent suggested it. A Bank F/D will have the least amount of fine print and will have almost zero risk.
 
Method I am planning (read somewhere), divide the money into four equal parts, then follow
  1. invest 1 part low risk, fixed return (FD/RD, Bonds etc)
  2. invest in low risk, less volatile market (MF, stable/safe equities)
  3. invest 1 part in high risk, high gain - equities.
  4. keep 1 part in SBA for emergencies. (And if that emergencies are already covered, divide the amount again in 3 or 4 parts and follow the same rule)
 
If you have 4L idle in savings A/C try following investment tips, assuming that you have Low Risk appetite investments

First up get a Term Life Insurance cover of 1 Crore from a reputed Insurer (not LIC as their plans suck) like SBI Life, ICICI, HDFC or rest, they offer great Online Term insurance plans starting from 5000 per year for a 30-35 yr term. Life Insurance is always an expense & not an investment, so dont expect any returns.

Then,

1. Open a PPF account & try to put in as much money as possible (1 Lac is limit per FY) before April of each year. PPF is Risk Free EEE investment means you get Tax Benefits under 80C, No TDS or any other Tax on maturity. Interest rate of 8.5%. Lock-in of 15 Years but you can get a huge lump sum after term ends.

2. Park around 1 Lac to 2 Lacs in Debt or Liquid Mutual Funds, these are low risk investments & offer much better tax benefits than a savings a/c. Also these funds can be liquidated i.e encashed in a day.

3. Keep 50000 to 1 Lac as a contingency funds depending on your lifestyle, a Sweep-in account could also serve the objective as these accounts are flexible FDs you can withdraw money anytime & get interest rate of 9% & up.

4. If employed increase your EPF / NPS contribution as much as possible, EPF is also an EEE investment & takes care of your retirement corpus, also Tax free returns @ 8.75% are fantastic. NPS on the other hand gives you diversification across Govt bonds, Corp Bonds & Stocks which can also fetch you good returns above 12%.

If you have a High Risk appetite then, You can also start an SIP of 5000 per month in a good Large Cap fund, which can give you returns of around 15 to 20% depending on stock market. If you have the time for managing stocks yourself, you can start a DIY SIP by buying stocks worth 5000 each month.

Lastly dont keep 4L idle in a savings a/c, inflation will erode its value & TDS will eat away chunk of your interest earned too.
 
Can anybody explain what is a Sweep In account and how different is it from a FD and also why would anyone want to take a FD when the Sweep In accounts give the same benefits without the lock in period?
What is the catch?
 
pradeep200417 said:
Can anybody explain what is a Sweep In account and how different is it from a FD and also why would anyone want to take a FD when the Sweep In accounts give the same benefits without the lock in period?
What is the catch?
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Sweep In account is a bank account that automatically transfers amounts that exceed (or fall short of) a certain level into a higher interest earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds. Auto sweep facility combines the benefit of savings bank account and fixed deposit account. The intention or benefit of this facility is to attain the high degree of liquidity in your savings bank account with maximum returns. This facility has the threshold amount of certain limit, if you have the excess of the threshold amount in the account, this facility automatically move the excess amount into the fixed deposit. It earns the highest interest rates then in the savings bank account.

Regular FD: In this type of FD scheme, the tenure is fixed for a period ranging 1 week to 10 years. The interest rate of each period is pre-determined, and an investor can choose to stay invested for a suitable period.

Tax saving FD: This type of FD scheme attracts investors who want to invest for saving income tax. There is a compulsory lock-in of five years under this type, and the fund cannot be withdrawn before completion of the period.

Special FD: In special tenure FD schemes, the fund can be invested for a special period like 333, 399 or 555 days, and rate of interest is higher.

Recurring deposit scheme: Under this scheme, an investor can regularly deposit a fixed amount every month for a fixed tenure and at a pre-decided interest rate. The corpus keeps on growing every month towards the maturity period.

Floating FD: Under this scheme, an investor can opt for a market-based interest rate. The rate of interest is renewed automatically with the change in the base rate.

A very good read here: http://www.jagoinvestor.com/2011/03/auto-sweep-bank-account.html
 
For time being avoid Mutual Funds / Stocks say till May... Let the election pressure get over, markets are over priced now ! You will get bad impression about them if you get dragged in falling markets.

- Starting with FD / Gold seems good considering you will hold till 4-5 years.
- Introduce PPF at the the time when you are required to pay income tax (add certain amount every year)
- Get a pure insurance plan - a rider with pension is good considering you are starting at an early age (an advantage for you in this case)
- If you have direct dependent also consider term insurance plan (its not an investment but a safeguard for loved ones - again advantage for you as it will be cheaper considering your age)

And the most important investment everyone forgets -

Invest in yourself, go for higher education, learn advanced course from your field... Getting higher salary opens big way in for investments...!
 
1) 1 lac PF
2) Move rest into Yes Bank - give you a reasonable 7% or so on savings ac balance of more than 1 lac
3) Consider debt fund investment NOW. Invest now, exit say april 2015 and you'll get double indexation benefit (2 fin years) and your net post tax return will be around 9 - 10%
 
avi said:
What's an e-MOD and how it is different from FD?
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FD is fixed for certain lock in period eg. 1 Lac FD of 5 years, you cannot withdraw funds directly & penalties are levied if you break the FD.

An e-Mod account also known as Sweep-in account is a flexible FD in which you can withdraw or add money to the account & get same interest rate as 9%, No penalties are levied.
 
Disclaimer: I am not a Financial adviser so please take my advice with a packet of salt :)

When it comes to investment IMO - @mathrisk has got it almost right. And while @siril_k 's plan is good, it has some problems - with a country like ours where the inflation is through the roof - eventual payouts from 8.5% bearing investment outcome might not be that good.

The starting line:
The most basic investment portfolio diversification is called 60/40 allocation. What it means is 60% in stocks and 40% in bonds. The idea is to collect higher returns from the stock market while protecting the downside with bonds in case markets go wrong. This basically hedges your portfolio. Now there have been support and critique of this allocation(remember most of these sites are American):
http://www.learnbonds.com/the-60-40-rule-of-investing/
http://www.forbes.com/sites/investo...o-contruction-is-a-better-recipe-for-success/

What this means is 60/40 is not a holy grail and it wont work every time. You need to look at your portfolio and re-adjust whenever required. In a stock market bull run, you will want to be 80/20 and during bad time 30/70.
Most of the balanced MFs use a similar allocation (aggressive one use - 80/20, conservative ones at 35/65).
Yeah it does take more work than adding money to PPF/EPF/MFs/RDs but its worth it. Now you might not get it right the first time but with practice it does work out (if you dont get it the 2nd time hire a financial planner :p )

Stocks
Many people fear stocks because they had invested (due to excitement on learning of someone's windfall or hot tip) and lost money. Some even view it as a gambling, you loose more than you can win. Fact is many of us don't do proper due diligence on the stocks or want to earn the awesome high returns.
Point to remember is if a stock suddenly becomes famous; most of the time it gets dumped (after it makes a final notch upwards).
That said, if you really want to invest in stocks; invest in business you can understand. If you dont have any, pick a sector - Subscribe to trade journals, magazines etc on the relevant sector and learn more about. It is a time consuming process but it will pay huge dividends.

Personally, I have been investing in pharma/medical heavily. Why? Because just like real estates, it will go up eventually. People do need newer drugs, newer procedures. There is no way around it. I do read up the health and tech section on google news about upcoming drugs, generic manufacturers, FDA etc to keep abreast of all development,

If you think that sounds a bit difficult maybe try a broad market fund.

Mutual Funds
When people talk about broad market funds - the very first thing comes to mind is MF. I personally don't think MFs to be a good idea because of:
a. Fees - They charge you irrespective. Many MF sellers go quite when I ask them if they will do a higher watermark for me (ie you take fees only if there is a MoM growth)
b. Lock in period
c. Portfolio adjustment - Yep the "portfolio thing" applies here too. Most of the funds invest in one way security ie infra MF its all infra and if that goes bad, you are stuck. There are some which are pure stock or pure bonds. And then there are mixed (60-40, 55-45, 35-65 etc). Fact is a fixed allocation is not good, it might work for one period and go bust the next. Most MFs take quiet some time to adjust their holdings.

So I invest in ETFs. These are also broad market funds but trade on exchanges. Point a, fees, still applies in form of brokerage charges when you buy/sell ETFs. Those are still lower and controllable than the MF fees.
Flip side is there are always MFs which perform better (in terms of broad market) than ETFs. Though not many of them are consistent performers. So its a bit of a pain trying to find these again and again.

There are some more things I wanted to cover but then I spent last 2 hrs writing this between meals. :p I might add to this later.
 
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