The Early Investor- Part 1 of the “Personal Finance For Starters” Series


The Early Investor- Part 1 of the “Personal Finance For Starters” Series

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KEY HIGHLIGHTS

  • For longer-term goals, they should have ideally a 75 percent exposure towards equities for longer-term capital appreciation and a 25 percent exposure towards Debt investments.
  • Equity investments could be contemplated through a mix of passive index funds, basket of few large and midcaps mutual funds
  • Debt portion could be through appropriate debt mutual fund schemes, corporate deposits
Personal finance is an important concept for just about everyone, no matter your age, income bracket or your idea of ​​an “ideal” future. While planning your finances is subjective to your needs and goals, it still needs to be done.

But what exactly is personal finance?

Simply put, personal finance is the process of planning and managing your financial activities such as investments, spendings, savings, etc. It also involves protecting yourself financially against any unforeseen such as windfall losses or a medical emergency for instance by making provisions.

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According to a study titled ‘Financial Planning Preferences of Young Indians,’ the youth at the present are more aware of the concept of personal finance than the generation before them. At present, India has about 50 percent of its population under the age of 25 years. This age bracket who has just completed their education and are relatively new in the employment sector have just started receiving an income, and have taken over a few financial responsibilities on their shoulders. These could include contributing to household expenses, paying rent, funding expenses while living away from home, etc.

With a fresh inflow of money every month and surmounting expenses, it is important to plan your finances not only for the present, but also for the future in terms of savings and investments. So, if you fall in this age group, where you have reached in the process of figuring out your finances?

Managing your income and expenses can seem like a daunting task just when you enter the workforce, but the earlier you begin, the better returns you reap over time.

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So, how must people who have just received their pay-cheque begin to navigate their finances?

The Guiding Voice: Here’s what experts say

Mitesh Shah, CA and Financial Advisor at Money Tree Wealth Management LLP said, “Today’s youth should be planning their finances based on two divisions- near term requirements/expenses and mid or long term goals. For near-term expenses they should simply lock in an amount in a fixed deposit account for three or six months and earn an interest on it. Meanwhile for longer term goals, they should have ideally a 75 percent exposure towards equities for longer term capital appreciation and a 25 percent exposure towards Debt. Equity investments could be contemplated a mix of passive index funds, basket of few large and midcaps funds whereas portion could be through mutual funds through appropriate debt mutual fund scheme, corporate deposits and deposits. The discipline of regularly putting away some part of the salary on a monthly basis through Systematically investing (SIP) will help them in term longer wealth generation.” Shah said that within equity investments, the distribution should ideally be 50 percent for passive index funds, 25 percent for flexicap funds, 15 percent for midcap funds and 10 percent for small cap funds.

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Speaking on the current market scenario, he added, “They should use the current fall and volatile markets to accumulate sound blue-chip companies which would help them get compounding returns over the longer term and help beat inflation.”

Fledgling investors are eager to learn about ways to invest, and are relying on various sources of guidance for the same.

Sujay Choksey, a young value investor said, “Out of my income I save up around 40 percent -50 percent, and 80 percent of that I allocate into equities. I took a two-pronged approach to understanding how I want to invest. First approach is that I read and researched extensively, referring to the works of Bill Ackman, Benjamin Graham, Warren Buffet, Peter Lynch; and the second was I started positional trading with small amounts to figure out how to invest my money.”
Another recent investor, Jinita Shah, a business development professional, shared her take on her investment journey so far. She said, “Before I properly understood what investing is, I preferred an FD because I thought it was safe and guaranteed. But I started investing only very recently, and I started out with blue-chip stocks. I feel like equities are in a bad space right now, but given the inflation situation, I’d rather risk some money in equities hoping for a higher growth rate than safer but lesser attractive FDs.”

Talking about investing in new age digital asset classes, she said, “I feel like cryptocurrencies are too risky for me to invest in. The world is still trying to figure out how to use crypto as a medium of exchange, and given the current volatility in the crypto space, I’d prefer to stay away from it.”

While personal finance is broadly subjective, it is a road that must be taken by everyone. The earlier they traverse down this road in their lives, the better it is for long term returns.

https://www.etmoney.com/mutual-funds/equity/mid-cap/35

https://www.etmoney.com/mutual-funds/featured/best-index-funds/12

https://www.etmoney.com/mf/what-is-sip

https://www.etmoney.com/mutual-funds/equity/multi-cap/34

https://www.etmoney.com/mutual-funds/equity/small-cap/36

https://economictimes.indiatimes.com/

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