Got a question about your money? What you should or should not do with it?

Our expert Devang Shah has the answers.

I am 28 and married. I am not sure whether or not I should invest in equity.

My monthly take home is Rs 13,500.

My insurance premium comes to Rs 1,000 every month and I save Rs 2,500 every month. This amount goes into my savings account.

- Prakash Sachdeva

Hi Prakash.

Learn to use equities as an investment vehicle to your benefit. You are of the right age to do that. Just remember that equity investment is not a short-term investment. You must be willing to hold on for a number of years. Those who invest in shares to make a quick buck stand to lose it quickly too!

My question to you is, do your current finances allow you to pull out Rs 500 every month to be put away for 10 years? If yes, do a Systematic Investment Plan in an equity fund starting from now.

An SIP involves putting away a fixed amount (in your case, Rs 500) every month in a mutual fund for a period of time. I suggest 10 years in your case. You should consider a diversified equity fund such as Templeton India Growth Fund. And you should expect an annualised return of about 16% per annum.

Another suggestion to you would be not to worry too much about the returns but be more focused about putting aside money every month into your savings account.

Once you have a reasonable sum accumulated, you should plan a time horizon for which you do not need the money. Then seek competent advice to invest it for that time horizon.

Your investment in the equity SIP I suggested earlier, will itself lead you into discovering alternative investment vehicles in the next few years.

Happy investing.

• In your 20s? Invest for the future now

I am 23 years old and single. My monthly take home is Rs 25,000 and my expenses amount to Rs 12,000.

Can you suggest how to invest the remaining income?

Within two years, I may require a maximum of Rs 3,00,000 for my sister's wedding.

- Ram Krishnan

Hi!

You have the capability to save Rs 13,000 every month which adds up to 3,12,000 in two years.

Two years is a very short time for you to invest in higher return investments like equity. If you do invest in equities, the chances that your investment value is less than the original cost at the end of two years, is high.

The important question is what is the minimum 'must have' amount of money that you will need at the end of two years.

Let's for a moment assume that the answer is Rs 3,00,000. You need to put away Rs 12,000 every month starting today in a floating rate income fund such as Templeton Floating Rate Fund � Short Term Growth or Grindlay Floating Rate Fund � Short Term Growth.

Floating rate debt funds are those that invest in fixed-return investments which have a floating interest rate and not a fixed interest rate.

That, in all probability, will give you this amount.

You could start investing the balance Rs 1,000 in a diversified equity fund with a value investing style.

More importantly, over the next few years, it will provide you with information and education on how to make the most of equities and mutual funds as an investment vehicle.

Illustration: Dominic Xavier

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