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
)
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.
I might add to this later.
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.
