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Sudesh Rana: I am a 23-year-old graduate and working as a trainee for the past seven months. I get a monthly stipend of ` 16,000 that could be raised to ` 25,000 in another six months, and I can save up to ` 10,000 from my salary. What should be the best way to invest the money?
Vivek Ranjan Misra, Head of Fundamental Research at Karvy Stock Broking, replies:
The primary goal of any investment is to beat inflation and get some additional returns out of the money you have put in. Many young people now shy away from bank fixed deposits because FDs cannot provide inflation- beating returns. On the other hand, equity as an asset class has caught people’s attention because the returns realised over the long term ( 10-15 years) are far superior compared to other asset classes. As equities have the potential to deliver superior returns, the risk associated is also high. As you are young and have time on your side, we would advise you to allocate the major part of your savings to equities to develop a meaningful corpus. But first of all, you should build an emergency corpus to take care of all contingencies. For that, you should invest ` 6,300 for the next six months. Part of this amount can be invested in FDs and the rest in a debt liquid fund as the latter could provide returns of 6.8-7 per cent. Moreover, you should buy term insurance of ` 1 crore, which will cost you around ` 700 a month. Next, start a monthly investment of ` 3,000 in a mutual fund via SIP. After building your emergency corpus, you can also invest that money (` 6,300) in mutual funds. You can allocate ` 2,500 in a small- cap fund and the rest can be invested in large caps.