alekhkhanna
Innovator
Many good enlightening posts here I would llike to put my few thoughts.
As you are young and age is on your side you can go for a bir of risk in your investment horizon.
But first I need to know your tax bracket (I mean on average 10% / 20% or 30%)
PPF : As you are a first time investor, this is the best and most secure investment you can have in your portfolio. Right now it gives yearly 8.2% interest compounded annually) you can put in 100000 every year.
If you are not looking at much headache of managing and tracking your investments, you must use all your 80 C limits in this. As this is the only instrument that will stay in EEE segment post implementation of DTC.
Also as its by GOI you are sure of getting your money back unless India goes bankrupt 9In such scenario your money would be useless).
In PPF you can not withdraw your money totally, You can do partial withdrawal after full 7 years of account opening, and you can get loan after 5 years of running account. In a sense you have keep your money if you loose your money somewhere else senselessly.
Insurance : As every one said term plan is the way to go. You can not get returns from Insurance while you are living , you can insure your family safety in case of your untimely death. Neverever I say again loudly NEVEREVER fall in to the trap of excel sheets of returns indications of ULIPs (Equity market based insurance policies).
FDs : They are secured guaranteed return instruments, good for short term planning, still if you fall in higher tax bracket its not proper instrument as your interest income is taxed as per your taxation slabs. They offer quick access, easy availability and instant withdrawal so you should keep your 3 months expense amount in FD.
Mutual funds : Its the best and proper way of investing by a beginner.
They are of two 3 types, Equity (which invest in stocks on your behalf), Debt (Which invest in money market instruments like Govt. bonds, T-Bills, Commercial Papers) (in a sense a risky kind of FD). and Balanced funds which have a mix of both.
Right now Long term profit from stocks and equity mutual fund is tax free so if you keep your investments more than 1 year and you get profit you will not be taxed on profit (principal you have been taxed already in the income year)
So what you should do is select 2 balanced funds (like HDFC Prudence, Birla Sunlife Balanced fund, ICICI Balanced fund) and keep your investment there for a quarter or two, use the option of monthly dividend Reinvestment (If you are in 30% bracket it will be more tax friendly).
Another option is you go for bond fund if you intend to use the money in 6-12 months (good option is Birla Sunlife Dynamic Bond Fund)
After 3/6 months when your research is matured and you ar ready to take risk you should think of equity mutual funds.
There must be many terms here which you may not know the technical details, feel free to ask.
I am going on vacation so may not answer from 22nd onwards will update as and when I return.
Thanks a lot for the pointers @medpal. Definitely going in for PPF after getting the paycheck. I fall in the 20% category for taxation.
While I do understand the concept of MFs, how do I go about it ? FundsIndia ? Which site is currently a good one for managing them ? I use ValueResearchOnline for tracking dad's fund but find myself a bit finacially challenged when seeing all the different tabs there.
Equity Index funds, yeah. I'm gonna go again through this thread because I keep on forgetting things (having 10 hour induction days !). But IIRC, Equity Index funds are the likes of Nifty Beas, eh ? I plan on investing in them for sure, but only after I save some capital for emergencies.
Also what are money market funds ?
Yeah, the compounding power is awesome. Only hiccup is to wait for such a long time !
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