Investment Premier League

As published in the Telegraph on 19 April, 2017

The league you play throughout life

At different stages in life, you are in different teams. And each team needs its own winning strategy — even for investments.

Target: To win consistently

Team 1:

Who are they: Terrific Twenties

- People in their 20s

- Newly salaried

- Have little responsibility

- Can save a larger portion of their salary

- Have the potential to take risk

Winning strategy:

- Save at least 40% of your income

- Buy life, health insurance

- Chalk out goals for your future

- Reduce tax by investing in tax-saving options like Equity Linked Savings Scheme (ELSS). This can help for retirement

- Invest in other Equity Funds for other long-term goals

- Invest in Balanced Funds for medium-term goals

- Build an emergency fund in a mix of Liquid and short-term Debt Funds. Ensure you have enough to replace three months’ salary

Limitations:

- May not think long-term

- Limited salary

- May not be financially disciplined

- May not think about saving tax

- Limited knowledge

- Likely to follow the herd

Solution:

- Tax should be the first priority

- The habit of financial discipline can be developed slowly through tax-saving investments

- Invest small amounts through Systematic Investment Plan (SIP)

- Increase monthly investments with every salary hike

- Read up more about savings and investments; don’t follow advice blindly

- Get a financial advisor for help

Team 2:

Who are they: Rocking Thirties

- People in their 30s

- Likely to be married, maybe with kids

- Have high responsibility

- Can save a decent amount of their salary

- Have a mixed risk appetite

Winning strategy:

- Save at least 20–40% of your income

- Buy life, health insurance for family, kids

- Start planning for your child and family’s life events

- Continue to invest in Equity Funds for retirement and other long-term goals

- Some of it can be through ELSS schemes that also help save tax

- Invest in Balanced Funds for child’s education, new house, etc.

- Accumulate Gold Funds and ETFs for child’s wedding

- Increase your emergency fund soit comes handy for the whole family

Limitations:

- May have many urgent expenditure

- May not be able to save enough

- May want to avoid risks

- May not know enough

Solution:

- Automate investments. Save first, spend later

- Invest small amounts through Systematic Investment Plan (SIP)

- Increase monthly investments with every salary hike, bonus

- Invest in high-risk options only for long-term goals

- Opt for Balanced, Debt Funds for short/medium-term goals

- Get a financial planner to plan your money

Team 3:

Who are they: Adventurous forties

- People in their 40s

- Well-settled with growing kids, elderly parents

- Have high responsibility

- Can save a decent amount of their salary

- Have a lower risk appetite

Winning strategy:

- Save at least 10–40% of your income

- Get critical illness riders on life, health insurance

- Plan for child’s higher education, wedding, your retirement

- Continue Equity Fund investments for retirement

- Opt for a mix of tax-saving schemes — 50% in ELSS and 50% in Public Provident Fund, 5-year bank deposits, etc.

- Use prior investments through Systematic Withdrawal Plans (SWP)

- Invest in Balanced Funds for medium-term goals like vacations, buying new house

- Continue to be emergency-fund ready

Limitations:

- May have many urgent expenditure

- May want to avoid risks

- May have bad investment experience in the past

- May not know enough

Solution:

- Automate investments. Save first, spend later

- Get the help of a financial advisorfor correct advice; don’t listen to peers, salespeople blindly

- Try out new investment options in small amounts, say through SIPs

- Increase investments as you grow comfortable

Team 4:

Who are they: Kingly fifties

- People in their 50s

- Well-settled with grown-up kids, elderly parents

- Have medium-to-high responsibility

- Can save a larger portion of their salary

- Have little potential to take risk

Winning strategy:

- Save at least 10–40% of your income

- Tailor life, health insurance to fit your medical requirements

- Start a Systematic Transfer Plan to move Equity investments to Debt funds

- Ensure the transfer ends in time for retirement

- Plan to receive monthly income from investments after retirement

- Increase your emergency fund so it comes handy for medical, other emergencies

- Invest in a mix of Debt and Balanced Funds to prepare for child’s wedding

Limitations:

- May not revise investment plan

- May want to avoid risks

- May not arrange for post-retirement monthly income

Solution:

- Read about Systematic Transfer Plans (STPs)

- An investment advisor can help rebalance your investments

- Try out new investment options in small amounts, say through SIPs

- Increase investments as you grow comfortable

- Look for monthly income options that are tax efficient

Team 5:

Who are they: Super sixties

- People in their 60s or over

- Retired

- Have little responsibility

- Do not get a salary

- Have zero potential to take risk

Winning strategy:

- Get the most tax-friendly monthly income from sources like MF dividends

- Ensure your life, health insurance coverage continues

- Don’t pinch pockets; use past investments to enjoy life

- Ensure your emergency fund remains untouched except when you really need it

- Invest for grandchildren’s future through Equity, Balanced Funds

Limitations:

- May not think about tax efficiency

- May not use investments right

- May not have enough to last 20–30 years

Solution:

- Calculate your monthly needs right

- Don’t liquidate your investments too soon

- Read about Systematic Withdrawal Plans (SWPs)

- They can ensure you get a fixed amount every month

- And if you redeem Equity Funds, it could be tax-efficient too

What next?

A strategy is of no use if you do not have the right support. We are not just talking about the playing 11, but also those on the bench and the support staff. The same goes for your investments too!

For more details about seeking financial advice, head to our website:www.beswatantra.com

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