In the season of corporate layoffs, retaining a job is as difficult as finding one. As a fresher, you will make every attempt to excel at your job. Undoubtedly, you will work hard and deliver results that are beyond expectations. Despite your efforts, there is always a possibility of losing the job because of factors that are beyond your control. Hence, it is wise to be prepared than to be worried. One way of cushioning yourself against a layoff is by investing your money optimally. Here’re five ways for a fresher to begin his or her investment journey:
1. Invest something, no matter how little
Investing is a habit that one should develop. The best way to do it is by setting aside an amount every month, which could be as little as Rs 500. You can start a Systematic Investment Plan (SIP) in a mutual fund with that amount and increase it gradually as and when possible. The important thing is to begin the investment journey. There is no thumb rule about the investment amount, but ideally, you should save at least 10-20% of your income. This quantum of savings should increase with increase in the income. Starting an SIP is important because the money goes out of your bank account even before you get a chance to spend it. This is a great way to build the habit of investing.
2. Invest in equities
A fresher should be open to equity investments as he/she has many working years ahead of him during which, he/she can earn and build wealth. Investing in equities can be risky but the risk gets mitigated with time. Over a period of 5 years and more, equity funds become more rewarding than their fixed income counterparts. It helps in creating real wealth. Hence, it is advisable to begin the SIP with an equity mutual fund. Also, they are tax-efficient as gains on investments held for one year become tax-free.
Equity funds earn higher returns over different time periods
Equity multi-cap funds
Equity large-cap funds
Debt dynamic bond funds
Debt income funds
# Annualized returns as on 16 June 2017
3. Avail tax-saving deductions
There are a number of expenses and investments that you can claim to reduce your tax liability. EPF deduction, investments in PPF or ELSS funds or NPS is some of the tax-saving investments that can be availed. You can save up to Rs 1.5 lakh under Section 80C. For youngsters, ELSS funds are a good option because they are equity-oriented mutual funds and have the highest earning potential. They also come with the shortest lock-in period of 3 years and you can stop investing in them any time you want.
4. Spread and diversify investments
A common investment mistake is putting all your eggs in one basket. Your investments should be diversified across different asset classes, so that you are able to get the best out of them collectively. Different asset classes like fixed income and equities serve different purposes. You should go for an asset mix that is ideal for your age, income and risk profile. An easy way to diversify is by investing for specific goals. Depending upon the number of years in hand, you can decide the amount of equity. Percentage of equity allocation should be proportionate to the number of years available to achieve a certain goal. In other words, percentage of equity allocation should higher if the number of years to achieve a goal is more. For example, you can have a higher percentage of equity allocation, if the investment is for your marriage (more number of years in hand). However, for a goal like the down payment for a vehicle in 2 years (less number of years in hand) you should opt for debt mutual funds. Aligning your investments to goal will help you to diversify and keep a track of them easily.
5. Get insurance before you begin investing
Investing at an early age is good, but getting an early insurance is even more important. This is true for both life and health insurance. The insurance premium will be low for a young applicant as compared to an older applicant. Also, the complications for getting insured will be less for a young applicant as compared to an older applicant. So insurance is something you should not procrastinate. In case of life insurance, you should go for pure term insurance. Investments should not be mixed with insurance by buying products like ULIPs. Insurance should be treated as an expense. When it comes to health insurance, don’t just rely on your employer’s policy. Buy a policy of your own so that you’re protected after a layoff as well.
These are some of the ways that a fresher can use to begin his or her investment journey.
(The author is Founder & CEO, ClearTax.com)