Most youth do save, and some up to a fourth of their income. But what a majority of them falter at is investing- investing intelligent.
MONEY TODAY presents a step-by-step primer for young investors.
There are good and bad loans. Good loans are used to build assets such as a house. Bad loans don’t create assets and are used to buy home theatre, PDA, etc. Debt service ratio (monthly loan payment as percentage of monthly take-home income) indicates your repayment ability without stretching your resources
- Home loan: can invest up to 40-45% of your income
- Auto/personal loan: should not be more than 20-25% of income
- Credit card repayment: no more than 10-15% of income
- Total debt servicing not more than 40-45% of pay
Retirement Planning Now?
Plans to holiday and travel after an active career needs to be well funded. Power of compounding helps you amass a huge retirement corpus; the earlier to start, the bigger it gets
- Contribute into pension plans that are market-linked to cushion against post retirement blues.
- Park 7-10% of income to start an SIP in equity mutual fund as equities tend to beat other asset classes over the long term.
A high-risk and high-return investment. There are options like IPOs (initial public offer), mutual funds and direct equity start safe with a mutual fund; you can do so with a SIP (systematic investment plan) and then look at other investing options
- Bonds and deposits are fixed return in nature, best avoidable for those under 30
- SIPs into any well-performing fund scheme is a good way to safe and disciplined stock investing
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