Q. I am 30 years old and can invest ₹5,000 per month in a SIP for 25 years. I can increase the sum by 10% every year. What are some of the best mutual funds to invest in for such a long term?
If you are first time investor, taking into consideration your age and investment tenure you can invest the said amount majorly into equity asset class between Index funds and Hybrid funds. Based on your experience and comfort within the Equity asset class, you can gradually increase your SIP and diversify investments into other categories such as Flexi-cap and Mid-cap within the equity asset class basket.
While selecting funds look for parameters such as consistent rolling returns, risk-adjusted ratios, fund manager's history and most importantly a decent AMC history. Compare these parameters with other funds within the category and choose the right set of funds.
Once you start investing, review your portfolio once in a year regularly with your financial advisor and take corrective actions basis your risk profile and asset allocation requirement. Avoid frequent churning of funds as equity investments reap the best returns if held for long term.
Q. My husband and I intend to put ₹10,000 into SIPs each month for at least seven years. Can you recommend something for this period to maximise returns?
Considering the amount and tenure of your investments, you can split the SIP between equity and hybrid funds.
Categories like Index funds, Flexi-cap and Dynamic asset allocation funds can help you maximise returns keeping the risk reward metrics of the market also. Do not stop SIPs, instead top up SIPs over the years as different market conditions offer good entry points to investors and helps rupee cost averaging.
Keep a check on the asset allocation of the overall portfolio and take corrective measures by consulting your financial advisor for sound investments.
Q. I am a 21-year-old student who is interested in investing in the stock market but cannot decide which stocks to buy. What should you look for when purchasing a stock? Which stock has a good chance of bringing you a good return?
Investment in equity shares or the stock market requires continuous monitoring, capital, and skillset to track companies. If you are equipped with these basic requirements, then you can consider investing into stock markets.
There are multiple factors you must consider evaluating a company stock. These factors are strong fundamentals such as Earnings, Valuation, Cash-flows, sector trend in which the company is into, peer competition and sound management.
The ideal way to buy stocks as a beginner would be to invest into defensive sector stocks such as consumer durable, utilities or FMCG as it entails low volatility. Regardless of the condition of the overall stock market, defensive sector stocks provide consistent earnings because consumers need them during all phases of business cycle. The ideal investment horizon for any stocks should be held for 3 years+ for decent return generation.
Q. In India, how much health insurance coverage should I buy to look after my retired parents?
Health insurance for parents is important keeping in mind the unique medical needs of elderly and thus providing a higher sum assured would be good. Medical inflation has been rising at a rate of 12% - 15% per year. Hence, it is important to buy a cover of at least 30 lakh. Make it economical, you can buy an individual cover of ₹5 – 10 lakh and enhance the cover by taking a super top up cover. A super top-up health insurance plan is like an extension of a base health insurance plan which you can use after your base cover is exhausted; thus the premiums for the same are highly economical. Please note that in case your parents have pre-existing illnesses then getting a personal health insurance cover could get difficult. In such a situation you may be asked to opt for a co-pay where ~20% of the cost will have to be borne by you.
None the less, please make sure to build a medical corpus of ~10L for them. It will help cover the expenses which are excluded from a health insurance policy.
Q. I just graduated and have been told to buy life insurance. Is it prudent to purchase life insurance at the age of twenty-one?
The younger you are the healthier you are and thus the life insurance premiums are lower. Life insurance is usually bought when you have liabilities and/or dependents to take care of. So, if there is dependency on your income currently or if you are expecting dependency on your income in the future then you should opt for a life insurance cover.
Additionally, these premiums get locked throughout the term of your plan.
When you opt for life insurance, separate life insurance and investment products and consider taking term insurance plan only which is the purest form of insurance.
Review your insurance requirement regularly as and when life situation changes.
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
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