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Subbu`s Solution

Posted On Friday, Jan 23, 2015

  • Q1) I am 24 years old and have just started working. I can save up to Rs 12,000 a month. I am willing to take risk. How should I invest this sum?

    It’s great that you want to start investing at this early stage. Given your age and risk appetite you should look at equity investments. Equity has potential to earn high returns over the long period of time. However compared to other asset classes equities are more risky and the year on year returns are volatile. Also remember, with relatively less responsibilities this is an ideal time for you to start investing for your retirement. Moreover in my view you should, while focusing on equities, also look at diversifying your investments in Debt and Gold as well. This will help you become a disciplined investor in the long run and balance out the risk factor in your portfolio. Moreover you could also consult a financial advisor to suggest you a scheme.

  • Q2) I am 25 years old and have just started two monthly SIP`s of Rs 1,000 each, in ICICI Prudential Focused Bluechip and Birla Sun life Frontline Equity fund. I have also started a recurring deposit of Rs 2,000. I can further invest Rs 3,000-5,000 a month. Where should I invest?

    It’s great that you are thinking of saving and investing when most people of your age are only busy spending! You’d have about 3 decades of investing time and if you keep a disciplined approach, most of your life goals should be met smoothly with your investments. Presently you have allocated 50-50 to equity and fixed income respectively. Typically for your age this ratio can be 75-25. Gold is also a must-have for any long term portfolio. So you could invest about 5% of your total amount in a Gold ETF if you have a demat account, else in a Gold Savings Fund. The rest – 20% can be in a liquid fund and an RD. The equity investments could be among 2-3 diversified fund & mid cap equity funds. It is important that you choose the individual funds right and also maintain your portfolio balance among different asset categories. While choosing equity funds it is important to see the process followed by the fund manager. Do not look at the near term returns of the fund, but look at the fund returns over long periods and in different situations. Moreover you could also consult a financial advisor to suggest you a scheme.

  • Q3) I want to invest Rs 6 lakh in an instrument which is liquid but safer than stocks and gives better returns than a savings account or a FD. What are your options?

    The investor has to take into account the time horizon and the risk appetite before investing his money. If the investor has a holding period of less than 6 months, Liquid funds are one of the ideal investment vehicle. If the risk appetite of the investor is slightly higher, then longer duration products such as short term bond fund may be attractive.

    While fixed income products are considered as less risky than stocks from a volatility point of view, in the long run their returns may be lower than rate of inflation. This means that your investment in saving account and or liquid fund, may not generate returns to cover the increase in prices i.e. inflation. E.g. if something costs Rs. 100 now and the rate of inflation is 8%, then the same good/service will cost Rs. 108 in the future and if your fixed income investments return anything less than 8%, then you go out of pocket for the difference. While stocks may be volatile and the investor may consider it be of high risk, it has the potential to generate rates of returns in the long term which can beat the inflation.

    However if stocks are a strict no then investing in a liquid fund can be the other option. Moreover you could also consult a financial advisor to suggest you a scheme.

  • Q4) I am 18 years old, first-year undergraduate student. Every month, my parents give me an allowance of Rs 3,000. After all my expenses, I save up to Rs 1, 500. Instead of just saving the money, I want to invest it in suitable instruments. Please advice.

    It is nice to see youngsters today are thinking of investments from an early stage. Considering your age, in my view you could start investing via a Systematic Investment Plan (SIP) in a diversified equity fund. Remember before investing you need to look at two points 1. The long term return of the fund and not the short term (how has the fund performed over the long term) and 2. Low expense ratio – always choose a fund with low expense ratio. Moreover you could also consult a financial advisor to suggest you a scheme.

  • Q5) I am 24 years old. I have a monthly surplus of Rs.4,000. I want to invest for the long-term but do not want to take much risk. Please suggest some investment options. Also, please suggest a few books that can educate me on making investments in mutual funds.

    At your age and for long term generally equity is best suited. But then with high returns, it also comes with high risk. If you are looking for investment options that don’t carry much risk then you can invest some part of your surplus income in liquid fund and some can be invested in gold to give your portfolio some diversification. A balanced fund could also be a good option including a multi asset fund. There are a lot of financial gurus out there, Warren Buffet of Berkshire Hathway, John Bogle of Vanguard, Bill Bonner of Agora etc. who have written several books on investing right. Those books should give you a good insight into the world of investments. Moreover you could also consult a financial advisor to suggest you a scheme.

  • Q6) I want to start an SIP in my 13-year-old son’s name. Is it possible to do so even though he does not have a PAN card. I am looking to invest Rs 5,000 per month, for a 5-year period, what kind of funds should I look at?

    Yes, you can always start an investment for your son. It is understood that your son being a minor may not be having a PAN card. You can submit his birth identification proof. But remember as a guardian it is mandatory that you need to have your KYC done. Also it is advisable to have a bank account in your son’s name with you as a guardian. As far as the investment is concerned an SIP for long term is best suited for your son. Generally, we suggest equity oriented funds for young investors who mostly have a high risk taking capability. You could invest in a diversified equity fund that will help you generate long term capital appreciation for your son.


Subbu`s Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited. The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. The responses are not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or units of the Mutual Fund. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Please visit - to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme`s objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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