Hello. I am a 22-year-old unmarried male living in Trivandrum, Kerala. I am from another state, and my mom and dad live there. They have a government job, and they are totally financially independent. I just got a permanent job at ISRO as a Scientist (Central gov.). My current in-hand salary is Rs 75,000 monthly (after deducting all taxes, National Pension Scheme, and ISRO health & life insurance). ISRO health & life insurance is great, so I don’t need extra money on outside insurance. I am alone, so my monthly expenses are a maximum of Rs 15,000. I want to invest in equities of 8-10 blue-chip companies like HDFC bank, Infosys, TCS, L&T, Reliance Industries, Hindustan Unilever, Asian paint, Tata Motors, sun pharma, SBI bank, AND two mutual funds of medium cap companies; I don’t want to invest anywhere else. So, please answer the following questions:
How much salary should I invest? Should I invest the remaining 60,000 INR salary or keep some extra money in my bank account?
How much percentage should I invest in each category: equities (of those bluechip companies) and two mutual funds (of medium cap companies)? I want moderate risk.
Should I invest from my SBI salary account or any other bank account? If I invest from my salary account, do I need to pay more income tax due to additional income from equities like dividends? (this may be a silly question, but I don’t know anything about income tax on investment returns)
Reply by Mayank Bhatnagar, COO, FinEdge
1. How much salary should I invest? Should I invest the remaining Rs 60,000 salary or keep some extra money in my bank account?
First of all, I must congratulate you for starting your investing journey at an early age. To begin with, you must set goals for which you want to invest. These goals provide purpose and help you sustain your investments. You must set aside a portion of your income towards creating an emergency corpus, invest for your longer-term goals and have enough short-term liquidity to maintain a good lifestyle.
To decide how much to invest, it would be best to identify your goals and then do the maths on how much you need to invest to meet those goals. Do take into account inflation when you assign amounts to your goals.
You must engage with an investment expert who could guide you in making a personalised investment plan that is unique to your goals and life stage.
2. How much percentage should I invest in each category: equities (of those bluechip companies) and two mutual funds (of medium cap companies)? I want moderate risk.
Remember that investing in direct equity or mutual funds should be done through an extensive investing process that takes into account your goals, cash flows, personal finance metrics, and investing beliefs. Once done, it is important to understand which category is best suited for investing. If you have a goal with a completion year of less than 5 years, it is suggested that investing in a Large Cap Mutual Fund would be ideal. However, if your goal is more than 5 years away, a mid-cap fund would be best suited for you. The key to successful investing remains resilience by being goal-focused, following a personalised investing process, and demonstrating the right investing behaviour.
Taking informed risks on the basis of the goal tenure is critically important. A great investing process will allow you to make smart decisions and benefit from compounding.
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3. Should I invest from my SBI salary account or any other bank account? If I invest from my salary account, do I need to pay more income tax due to additional income from equities like dividends? (this may be a silly question, but I don’t know anything about income tax on investment returns)
There is no particular tax advantage if you invest from your salary or any other bank account. The capital gains accrued on your realised investments would remain independent of whichever account you choose to invest from. Make tax saving a subset of your overall goal-based investing strategy. For example, you could invest in a tax-saving ELSS Mutual Fund for your retirement goal. This would enable you to invest systematically towards your goal while also creating tax efficiency under section 80C of the Income Tax Act.
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