Investment Plans 293 views January 20, 2022

Investment philosophies vary among the investment class; while some invest just because their peers are doing, others research, plan and achieve the right investment results. Merely following your peer group may make you fall short of the desired investment corpus. Based on investment goals, risk tolerance, income & expenses, investment strategies should differ. Assuming you are new to your job and want to accumulate a corpus for child education, buy a home, surplus money to live post-retirement days comfortably, etc. So, how will you strategize to achieve these? The obvious way would be to invest smartly in equities that can raise your money substantially over time. Let’s discuss the equity investment strategies to achieve all these.

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What Equity Investment Strategies Do You Need to Adopt?

Investing in equities means buying stocks at a price traded in the market. You could either sell that on the day of buying or hold it and sell later when the value goes up substantially. For buying and selling, one needs to be registered with the Securities and Exchange Board of India (SEBI), the capital markets regulator.

You can invest in equities directly or take help from other means to do so. Investment strategies through equities would differ based on the goal type, its complexities, risk-tolerance, target amount, etc. Let’s go through these strategies as they come in their respective order.

Home Buying & The Investment Strategies to Ensure So

You cannot delay home buying by much. The possibility of having to service a large loan amount coupled with banks offering the maximum loan tenure till your retirement age (i.e. 60 years) makes early home buying imperative. So, look to buy a home by the time you’re 35 to 40. Any further delay could spell doubts over your loan getting approved by the banks.

Real estate prices are set to rise 30-40% over the next 4-5 years, claims the sector report published by Motilal Oswal Financial Services in October 2021. On a compounded annual growth rate basis, the price rise will be 4-5%.

Despite interest rates falling to multi-year lows of 6.50-8.00% per annum across most banks, the EMIs can still be sizeable to service. For example, someone 35 is looking for a home loan of INR 50 lakh for 20 years. The EMI will then amount to INR 37,574.

So, if he delays home buying by another 10 years, the price could be around INR 70-80 lakh at the rate mentioned above. Of course, his income would rise too by that time. But why pay more when you can cut your liability drastically by being smart in your investment strategies. Firstly, check the property and its price. It will give you an idea of the down payment amount, which accounts for around 10-25% of the property price. You need to pay this amount as lenders don’t finance the same.

So, a 50-lakh property would command a down payment of INR 10 Lakh. The remaining INR 40 Lakh will be disbursed to you as a loan. To accumulate INR 10 lakh, you need to start early with your equity investments. In case you invest INR 5,000 monthly in equities, the total corpus could swell to around INR 10 lakh over 10 years.

Investment Strategies for Child Education Corpus & Retirement

The next target would be to ensure a corpus for the higher education of your kids. But plan for the same the moment you start earning so that the power of compounding takes full effect. Now, what is the power of compounding – you may ask. It’s the effect of compounded annual returns that all of us have studied in maths during our school days. Interest on the principal amount invested as well as interest on interest, making the sum much larger over time, than one could imagine. However, the education corpus amount may differ based on the course type, the country of study, etc.

For example, if someone has to shell out INR 15 lakh for an engineering course today, the cost for the same will jump to around INR 50 lakh after 15-20 years. So, if you invest INR 10,000 monthly in equities, you’ll generate a corpus of around INR 1 crore over 20 years.

We would also advise you to invest a few in fixed deposits and debt mutual funds. The reason being keeping all your investments in one basket may make your portfolio inflexible. So, the eventual education corpus would go beyond INR 1 crore by the time you’re 50, assuming you start all this from 30.

You can thus set aside INR 50 lakh for education, have the remaining for retirement and add further to the same by continuing to invest till you retire. A monthly investment of INR 10,000 would help you accumulate around INR 25 lakh. Combining that with investments in fixed income instruments over all these years would ensure more than INR 1 crore corpus to live your retirement days.

But, Should I Invest Directly in Equities?

Direct investments in equities can help you earn massive returns should you know the right stocks and the right time to buy so. Also important is to sell those at the right time to book handsome profits. In case you can’t do all these on your own, investing through equity mutual funds or even unit-linked insurance plans (ULIPs) would make sense.

Both these investments are under the constant watch of fund managers who choose handpicked stocks to earn you the returns. However, nothing is guaranteed as the famous TV Ad says, “Mutual fund investments are subject to market risks. Please read the scheme-related documents carefully before investing”. The same thing applies to ULIPs too where you can get a life cover besides investment benefits. So, checking the profile of the fund managers and the particular funds you want to invest in becomes pivotal to a successful investment journey.

Note – The corpus amount calculated through equities has been based on an assumed annual return rate of 12%. The returns can vary and so can the corpus amount.

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