Q. I have ₹5 lakh with me. Will it be wise to invest in gold for 20 years such that this will grow to ₹3-₹4 crore?
Amit Kumar Yadav
A. There are two aspects here. The first is the return you’re expecting is unfortunately far too high. You are unlikely to reach your goal with your planned investment amount. For ₹5 lakh to grow into ₹3-₹4 crore in 20 years, you will need an annual return of 23-24%.
To put it in perspective, consider all 10-year periods over the past 30 years. In only about 2% of these has gold given more than even 20%. Yes, there are bursts when gold may rise very sharply by 50-80%. But these periods are almost always followed by periods of low returns. These ups and downs even out return over the long term. Gold returns have tended towards 10% or lower over the long term. If you consider stocks, the same trend holds as well. The Nifty 50 has very few periods where 10-year or 15-year returns are above 20%. Your other investment options are fixed-income instruments such as deposits or debt funds, which are obviously not going to deliver the return you’re looking for. Assuming a reasonable 12% return, ₹5 lakh would grow into about ₹48 lakh in 20 years. To reach ₹3 crore, you must invest about ₹4 lakh a year.
For now, invest the ₹5 lakh in a mixture of large-cap, flexi-cap and mid-cap/small-cap mutual funds. Let the maximum exposure to the mid- and small-cap funds be 30%. This is assuming you have a high risk appetite and are willing to hold through market falls, and that you already have low-risk debt investments. Else, reduce mid- and small-cap exposure. Use SIPs or STPs over the next 6-8 months to reduce timing risks.
Q. I am aged 19 and earn ₹6,000 a month. I cannot keep an eye on market fluctuations as I am busy with exams. Where can I invest?
Ashmita Sharma
A. It depends on what you wish to do with your investments. If it is for a goal that is not a very long way away — say, a post-graduate degree 4 to 5 years from now — then invest 35-45% of the amount in the Nifty 50 index funds. This will give you exactly what the Nifty 50 will return; you do not have to worry whether you’re with the right fund or reviewing performance. Note that you will still see return fluctuations in line with the markets. Investing in the index simply removes the need to track markets. Invest the balance in 1-2 debt funds from the short-duration debt fund and/or corporate bond fund categories. This will balance the risk you’re taking with the equity funds. If your investment time frame is longer than 5 years, raise equity allocation to 60-65%. You can allocate about 10-15% for the higher-returning Nifty Next 50 index.
Q. I am a government employee with ₹10,000 a month to invest. I want to invest in mutual funds with a time frame of 5 years. If I have to invest in stocks, where do I start?
R. Yadav
A. For a 5-year time frame, split the amount equally between equity funds and debt funds. This allows equity participation, while the debt will both shield your investments from stock market volatility and deliver FD-plus return. For the equity allocation, invest ₹3,000 in large-cap or flexi-cap/value funds that predominantly invest in large-cap stocks. You can also consider index funds based on the Nifty 50 or the Nifty 100. Invest the remaining ₹2,000 in flexi-cap or focused funds that take some amount of mid-cap allocations, or go with the Nifty Next 50 index. On debt, invest equally in two funds from the short duration or banking and PSU debt or corporate-bond fund categories. This will get you started on investing in stock markets, and over time, you can develop the understanding and knowledge needed to invest directly in stocks.
Q. I am 28 and will leave my job to pursue civil services. I have savings of ₹1 lakh. Is this enough to start share market trade or should I keep it as FD with SBI?
Saurabh
A. Invest the amount as an FD with SBI or in Post Office Time Deposit. Stock market trading needs understanding, needs you to spend time tracking markets and news. It is high risk. Given that you are taking a break from work and your savings are not large, it is best to stick to safe options.
Q. I have parked my earnings and accruals in SB and term deposits. Over time, these have not fetched a perceptible increase. What is a safe and assured way to higher returns?
R. Indra
A. For higher returns, you should be willing to take higher risk. There cannot be a high-returning instrument where there is no risk of loss. Stock markets offer better returns than bank FDs. But know that stock markets will fall, and it is hard to predict when such declines may take place. Market falls can be steep or shallow, recover quickly or drag on for longer periods. Every fall, though, is followed by rallies. Holding through the corrections and for at least 5-7 years reduces the impact of losses and volatility. If you absolutely wish to avoid any risk or loss, equity markets are not for you. SIPs do not remove the possibility of loss buy are just a way to invest steadily and at different market levels.
For safe options that can deliver more than bank FDs, consider instruments such as the RBI Taxable Floating Rate Bond (where interest rates are 0.35% above the prevailing NSC rate), the Pradhan Mantri Vaya Vandana Yojana, Senior Citizen Savings Scheme and post office deposits. You can also opt for FDs from banks that pay higher interest rates. But keep such deposits below ₹5 lakh in each bank in order to be adequately covered by deposit insurance. Another option is debt mutual funds, which are more tax-efficient than deposits, but still low-risk. They may see some volatility in returns in short-term periods, depending on which fund you choose, though these even out over time. Debt funds, however, need care in selection and understanding. Go for these if you have access to good advice and recommendations.
(The adviser is co-founder, PrimeInvestor.in)
Published - September 05, 2021 10:45 pm IST
