Last Updated on May 27, 2021 at 10:14 am
A young earner asks, “I’m 22 and started working in an IT company 1 year ago. I save around 50k per month and also have a saving of around 7 lakhs from joining bonus etc. I fall under the 30% tax bracket, and my EPF contribution is around Rs.4700 monthly. I have not started investing yet, and I’m totally confused about how to start.”
“Should I just buy a Nifty Next 50 Index Fund SIP, or should I also invest in low volatility stocks? If yes, then how much amount should I allocate in each? Also, since PPF rates are going down day by day, how much money should I allocate in ELSS funds (If at all I need to invest there). I need to find a good asset allocation for the coming years, and I was hoping you being an expert, could help me in that”.
“I have heard a lot about goal-based investing in your videos, but the problem with me is I don’t have any such major financial goal. My sole purpose of investing is capital appreciation. Also, I don’t have any dependents as of now. One more concern I had was should I allocate some percentage in gold/debt also or just equity and then maybe do asset allocation a few years down the line? Can you please guide me on how to manage everything?”
It is perfectly fine to be confused before buying any investment product. Many people do the opposite. It is also perfectly fine to invest only for capital appreciation without any goal. However, if you stop to think about it, the moment you started working, financial independence became your goal. So I would recommend that you tell yourself that you are investing to be financially independent as soon as possible.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Since you have a few lakhs saved up, you can use at least half of that as your emergency cash reserve. About one lakh in a savings bank and about two-three lakh in a liquid fund. For fund recommendations, you can refer to Handpicked List of Mutual Funds Apr-Jun 2021 (PlumbLine). You can buy yourself/your family something nice from the rest of the bonus saved up!
An asset allocation is crucial to investing, whether you have a goal or not. At 22, you can afford to hold about 60% equity and the rest in fixed income. This asset allocation does not include the emergency fund.
You can always opt for higher equity allocation, but 60% should be enough. There is no need for direct equity (stock) investing. It would only distract you from what should be your main goal now: learn new skills and build your ability to make more income.
I would recommend you choose the new tax regime. This way, you will not clutter up your portfolio in the name of an 80C tax deduction. This eliminates the need for ELSS mutual funds or PPF (since you already hold EPF).
All you need to a NIfty or Sensex index fund (see plumbline for funds) for the equity portion (60%). EPF will be the debt part (40%). An index fund eliminates the problem of worrying about active fund manager performance and fund hopping. If the EPF portfolio is initially higher, you can correct it by investing the 50K into equity over the next few months. You do not need to invest in gold separately.
This portfolio will be easy to manage. When necessary (for example, if you need to rebalance from equity to debt), you can consider including a debt fund. Always first consider the performance at the portfolio level. You can rebalance the portfolio if the asset allocation deviates by 5%. For example, if your equity allocation increase from 60% to 65%, you can shift 5% to the gilt fund. If your equity allocation drops from 60% to 55%, you can shift 5% from the gilt fund to equity.
Finally, I would recommend that you have a long-term vision of your life and aspirations. What do you wish to achieve in 5Y, 10Y, 15Y time? If you do not have an idea (perfectly normal), exposure to diverse topics and people will help. Do nothing for one hour each day – literally! It will help. I wish you all the best.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)