Before you begin

Save two to four months worth of living expenses in a readily accessible place. This is your emergency fund to meet unpredictable and unforeseen expenses such as sudden medical costs. You could deposit this amount in a savings bank account separate from your other accounts. If you’re in a secure, public sector job, you might consider saving only two months worth of expenses rather than four!

This is your emergency fund to meet unpredictable and unforeseen expenses such as sudden medical costs. You could deposit this amount in a savings bank account separate from your other accounts. If you’re in a secure, public sector job, you might consider saving only two months worth of expenses rather than four! Pay off any high interest loans. If you have any credit card loans (which typically carry an incredibly high rate of interest), you should pay that off before investing in Mutual Funds. If the interest rate on your loans is low (a subsidised student education loan, for example), you could consider investing in a very low risk instrument such as a Liquid or Ultra short-term debt fund which could earn you some money over the interest rate on the loan itself.

What should I invest in?

There are broadly four types of financial investments: Equity (or stocks), Fixed Income instruments (bonds, debt, or bank deposits), Commodities (such as gold and silver) and Real Estate (or property).

Unless you’re a financial expert with the time to monitor your investments regularly, you might not want to directly invest in a particular stock or commodity.

Mutual funds are well suited for working individuals without the expertise or time to manage their investments. Mutual funds are managed by market experts, called “fund managers” who look after your investments full-time, so you don’t have to. You can either invest as a “lump-sum” every once in a while or invest a part of your savings every month in a Systematic Investment Plan (SIP). A SIP lets you automatically invest from your bank account so that you’ll never forget an instalment.

Choose your investment portfolio. All investing carries risks. But a simple 50/50 strategy that works over time is to invest 50% in a lower-risk debt mutual funds that beat your bank’s fixed deposit rates, and the remaining 50% in equity funds that offer a higher return but are more volatile (higher ups and higher downs).

How early should I start?

Long-term compounding is an investor’s best friend, so why get in its way -Guy Spier

Start as early as possible. In fact, right now would be nice. Why? because investment returns compound over time. The power of compound interest makes an amount that seems small now, result in huge returns over time. Here are some examples:

25-year old investing Rs 5,000 a month until retirement at age 65

Amount Invested: ₹ 21 lakhs (₹ 60,000 x 35 years)

Retirement pot 35 years later @ 8% per year: ₹ 1.08 crore

Wealth gain: ₹ 87 lakhs

Fairly impressive, innit? But if you start just 10 years later at the age of 35, your money has less time to grow

35-year old investing Rs 5,000 a month until retirement at age 65

Amount Invested: ₹ 15 lakhs (₹ 60,000 x 25 years)

Retirement pot 25 years later @ 8% per year: ₹ 46 lakhs

Wealth gain: ₹ 31 lakhs

See that? You invested ₹ 6 lakhs less, but your total retirement pot went down by more than half! All because you started ten years later — in your mid-thirties instead of your mid-twenties.

Convinced? Get started now on Clearfunds!