What are the best investment options for a 23 year old?

There have been many queries similar to this question and I had provided a decent, workable financial plan, that will help you to build wealth and meet your financial goals at various points in life.

The first thing is to check if you are saving all the possible money - meaning, have you claimed all the exemptions and have you filled in the taxes properly.

All the options of Section 80C for exemption purpose are listed below.

Checking of the tax filings so that each and every exemption is availed by you.

Given below is the list of all items that need to be completed to file for income tax returns (calculation of tax payable).

Once you are done with this, you now know the Total Income (gross), exemptions availed, Net Income, Taxes paid etc. After this is completed, the next part is to look at all possible investments.

There are many options of investment for a retail investor and most of them are covered under this section. The basic rules of investing involves knowing how much to invest and for how long? For that you need to know your surplus income/investable income to plan for your financial life. Irrespective of the income status, I will try to provide some options for investing in the long term.

 There are many ways to invest but investing systematically will help you in the long run. Before you start investing off, the first thing to do is have 6 months worth of your expenses in your bank account. This is because incase there is a loss of job, then you will have reduced income, but same expenses. This money is to tide you over that period, which you can leave either in a liquid fund earning 8% per annum or in an FD earning 7.25% pre tax.

U need to take a family floater health insurance early on, even if you company provides one for you, so that you can get exemption on pre-existing diseases later on, incase you change companies or leave your job. A Rs. 3 lakh policy should be more than sufficient since you are single and it can be increased later to Rs. 5 lakh, when you get married and start a family. Useful for tax exemption.

After that you need to take term insurance (life insurance) to the amount equal to the liabilities/loans that you have so that incase of any unfortunate circumstances they will be paid in full. Term insurances are cheap in earlier part of life when you are young. A 1 cr term plan for you will cost less than Rs. 5,500. Useful for tax exemption.

Once you have secured all the above then you should start investing.

U need to diversify your investments to average out your risks and also normalize your returns over a longer period. Before you think of investing in stock market through a diversified portfolio of stocks, invest in less riskier assets to get a proper understanding of investments and returns.

• PPF, Tax saving as well as government bonds will yield anywhere between 7 -9% on an average investment over a 15 year period.
• Liquid funds, fixed deposits, debentures will yield a post tax return of 7.25% - 8% on an average holding period of 3 - 5 years.
• Equity mutual funds, indirect investing in stock markets will yield more than 18% compounded annually on an average, if your holding period is more than 15 years.
• After doing all of the above, if you still have surplus income left, then you can invest in stock market directly or look for a real estate buy like a house or a flat.

Since you are not married this doesn’t apply to you for now, but later on, when you start a family and have a girl child, then you can invest in the Sukanya Samruddhi Yojana for a maximum amount of Rs. 150,000. It is good for the future, if you have a girl child.

First, u can start investing in PPF for the maximum limit of Rs. 150,000 , every year for an interest of 8.0% compounded annually for a period of 15 years, this will yield a sizable sum which you can use in 15 years for your other needs. PPF also helps you in meeting the 80C requirements (tax exemption).

Note: Some people tell that 80C can be fulfilled by PF from company. I like to look at PPF as a stable, government backed investment option, long term based that can yield good amount when your children are ready to go to college. The maturity amount can be used for college purpose or can be continued in block of 5 years, to support your kid when he wants to invest in a business or turn an entrepreneur.

Calculations for PPF are as follows:

Second, Invest around 15% of your total monthly earnings in liquid funds, this will help you secure 7.5% post tax as well as provide you with liquidity incase of emergencies. Alternately, u can use this amount for any holidays or special occasion or to buy anything expensive, incase you don't use it for the next 2 years. I am including some of the schemes with AUM > 500 Cr. from various fund houses, so that you can compare and invest accordingly.

Third, you can also buy gold ETF's or bonds as part of investment diversification - not more than 10% of your portfolio (total investment).

Fourth, start investing in SIP of mutual funds - fixed amounts in the beginning and then start increasing the allocation by 10- 15% each year, as your earnings increase. There are many good mutual funds that should get you started off. If you complete all these then you can start investing in direct equities, in small amounts across varied sectors.

Based on the risk profile and the duration of investment, you can pick a predefined portfolio for yourself.

Invest Rs. 10,000–20,000 per month (or an amount based on your monthly income & savings) through SIP of 6 -8 mutual funds spread across categories.

Out of the below mentioned sectors offering good returns, Pick 1 scheme from each sector/class. Picking 2 funds in small and midcap is important, they act as a booster for your returns in some years giving 50 - 60% returns. Important to pick dividend reinvestment option, so that any dividend declared will be reinvested for you to get more units at a lower price as compared to future years

1. Pharma

2. Banking

3. Technology

4. Power or Transport & Logistics

5. FMCG

6. Large Cap

7. Small and Mid cap (S&M Cap)

8. Diversified Equity

9. Balanced

You can do this allocation for a period of 20 years, then I am sure you will have sizable amount that would have compounded at the rate of 15 - 18% each year. This would be a good financial security as well as retirement benefits for you and your family for later years.

Hope I have been able to provide you some direction. Incase you have any questions, please feel to write and I will be happy to help you out to the best of my knowledge.

Happy Investing.
 more details contact fb : https://www.facebook.com/AtoZ-finance-services-1568670856485502/

THANKS FOR READING....🔐
 👦A.SIVASANKARREDDY,
✉ sankarasr9@gmail.com