Depending on our client discussions and the frequent questions asked, we keep on updating this section to benefit all of you to learn and create awareness about personal finance and investments.
Q1. Equity is risky and banks offer a very low rate. Where can I invest?
Ans. As it’s said, higher the risk, higher is the probability to generate returns. So if returns have to increase, it is imperative to take risk at some point. To make it simple, one must start with company deposits, where the returns are little higher than what the bank FD offers. Then there are debt mutual funds, which are fixed income funds and very reliable too. After that, one can look at a conservative hybrid or balanced funds, where the exposure is in both debt and equity, with high allocation in debt. Once the investor is comfortable, he can opt for an aggressive hybrid fund, where the equity exposure is high. Finally, the investor can opt for equity funds where exposure in completely into equity.
Q2. When can I say that I am financially independent?
Ans. When your total expenses can be sufficiently met with your accumulated corpus or your running passive source of income, you can consider yourself to be financially independent.
Q3. Should I time the market while investing lumpsum?
Ans. Timing the market is next to impossible. So we should focus more on the investment goal and the time horizon, rather than the timing of investment. If the horizon is of 5+ years, the lumpsum can be invested into equity fund using the STP route. Some drastic dips in the markets (such as 23rd March 2020 fall) can also be used as entry points. If the horizon is between 3-5 years, a hybrid fund would be ideal option. For duration of upto 1 year, ultra short duration funds would be better suited. If the horizon is upto 1.5 years, short term debt mutual funds would be ideal, with longer duration funds for period upto 3 years.
Q4. Are equity funds ideal for senior citizens?
Ans. Equity funds have the direct market risk and hence a high exposure in the portfolio is not recommended for senior citizens. However, considering the falling interest rates and rising inflation, a small equity exposure is advised in the portfolio for them.
Q5. What is the difference between equity funds and hybrid funds?
Ans.Equity funds are the ones where the fund manager invests the entire corpus into equity i.e. buying shares of the listed companies. Hybrid funds, as the name suggests, are a blend of equity and debt, where the fund manager invests the corpus across both equity and debt instuments. In this, the exposure towards the asset, depends on the risk nature of the fund. The hybrid funds are either equity oriented (equity exposure is high) or debt oriented (equity exposure is low). Equity funds are best suited for investors with a time horizon of 5+ years. Hybrid funds are suited for investors with a low risk profile and a time horizon of less than 5 years as the debt exposure reduces the overall risk.
Q6. I am a salaried individual and I have worked very hard to build my savings. I am a bit scared to start investing. How do I invest in a safe manner?
Ans. If you are looking for relatively safe investments then you should invest into non-equity assets such as debt mutual funds, gold, Government bonds, RBI bonds, PPF, etc. However, to beat inflation in long run as well as make a fortunnue, you will have to consider equity as an option at some point in time. The best way to invest into equity is via SIP route. Also, you should stay invested for a long horizon, to mitigate risk as well as get handsome returns.
Q7. I have just started investing, do you think equity would be ideal for me or should I begin with debt mutual fund?
Ans. Irrespective whether you are a new investor or an existing one, your investment category would depend upon your horizon till when you are ready to wait for the returns. If you are looking for a horizon of 6 months to 1 year then you should look at short term debt mutual funds. Similarly, if your horizon is of more than 5 years then equity would be an ideal asset to invest.
Q8. What is the right time to invest in a Mutual fund?
Ans. Any and every time can be considered as a right time to invest in a mutual fund. One can never time the market. Hence, we should focus on staying the course of our horizon rather than timing the entry. If one invests via SIP route, then averaging of units at periodic intervals helps to accumulate units and benefit from the dips in the markets. If one invests a lumpsum then he can opt for investing when market falls drastically e.g. 23rd March 2020 fall, else invest via STP route, where the units are automatically transferred from liquid or debt fund into equity or hybrid fund.