Where should I invest in for 3 years- Equity or Debt?
Hi FP guru,
I am a FY B.com student and have no knowledge about investments and banking. I have a saving of around 50k. i wanted to invest my money so as to get some good returns till the end of by third year.
I spoke to a friend who is a banker he advised me to start a FD, I even spoke to a stock market broker he suggested to invest in shares but for the complete 3 years and not to sell it in between, then I spoke to a friend who is doing CFP he suggested me your site for advice. So I would be glad if you could give me the appropriate advice. Would like to know if there can be even some better options where I can invest.
Regards,
Karan Belani
Dear Karan,
We thank you for visiting our website & approaching us for advice. From what you have said, we understand is that you want to invest Rs 50,000/- for a period of three years. You have previously approached a banker who advised you to invest in Bank Fixed Deposits & a broker who advised you to invest only in Equity shares. Well we don’t agree with both of them.
Let the amount of investment be anything, what is first & foremost thing to be kept in mind is time horizon for the financial goal of the investment. We don’t know your financial goal but we know your time horizon. For a three year period, investing all your funds in Equity is a definite no! No doubt your broker has told you to remain invested throughout the period but still if you need the money in three years, everything in equity for such period is not the right thing. This is because equity markets are long term assets in which if you are invested for a long time you can sail through the intermediate bull & bear phases & achieve long term returns. Investing everything in it is too big a risk. Three years is not considered as long term investment but more as medium term.
Investing everything in FD’s is also not a right thing as some amount of risk can be taken in a three year period. What you really need is a proper asset allocation between both equity & debt. What we suggest you is to invest 75-80% in Debt & balance 25-30% in equity. This allocation will give you decent returns with less risk as well as securing the money when you need it in three years. This would be the best way forward.
You may invest the debt component in Bank FD’s & the equity component in Equity shares. Alternatively you may invest in one debt oriented mutual fund which allocates up to 25% in equity. Certain Monthly income plan schemes of mutual funds follow this allocation. You can choose the dividend re-investment option for the same.
The problem you have faced is something which every investor is facing today. The financial advisor/distributor promotes only his own products. The banker told you FD’s is only solution whereas broker told you only Equity is the option. Actually you need both. Only an unbiased financial advisor/planner gives you such advice.
Hope this answers your query. Do visit us again & feel free to ask us anything related to your personal finance. We are always there to give you unbiased advice!
Thanks & regards,
FpGuru.com
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We suggest you to invest the savings also in a debt oriented balanced fund. This is ofcourse for the same time period of 3 years. We thank you for the feedback & wish you all the best for your business plan! Do visit us again & feel free to ask us anything related to your personal finance. We are always there to give you unbiased advice!
Regards,Fpgguru .com
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