For Someone who is absolutely at level Zero in terms of Money Management [New to Investing]

[cait549]

@sammie2019 Yes please write a follow-up

 

[luke]

@sammie2019 Wow I feel like this was written for me. Thank you!

 

[caroline01]

@sammie2019

I am giving the name here, because there are so many options in that category, that it again causes action paralysis of which one to choose

You could not be more correct about the action paralysis.

I started earning about a year ago and did not get time to think much about my finances because of some pressing personal issues.

Now that I have started to think about my finances the biggest hurdles are :

1. Term Insurance: So many options, I'm still researching, called a few of them. Hard to make a choice. HDFC, Aegon, ICICI, Max, all look the same with minor differences and premium amounts. Also all of them suggest different cover amounts. I tried doing a comparison myself by talking to them. Just for me even more confused.
2. Debt Funds and Mutual Funds: Started with a Kuvera account that seemed to be most recommended. I have put some part of my savings in a Liquid Fund and an ELSS, still not confident of my choices. But I had to start somewhere so put small amounts to begin while I continue reading up.

Some how the reading never ends and more reading leads to more confusion and more action paralysis.

1. Regd FDs, /@lily_pilgrim introduced me to SBIs MOD FDs that allow partial withdrawals.
2. Since I was very confused last year and didn't have time to think, I put all my 80C savings in PPF without thinking much. Not a great idea in hindsight, but better than doing nothing.

And for general account management, I only kept a little over one month's expenses in my salary account and moved the rest to another secondary account till I could begin to think what to do with it. Part of it transferred to FDs, part of it to ELSS, PPF, and debt funds. Now there's just 2 months expenses worth in the secondary account.

I'm still confused about which large cap funds SIP to be from long term perspective.

Other details:

25F, working since a little over a year.

Major upcoming expenses: Marriage 2-3 years down the line probably

Medical Insurance cover provided by Co: 8L

Term Insurance Provided by Co.: 30L

Help!

Edit: Thank you so much for this! Looking forward to the rest.

 

[sammie2019]

@caroline01 Please go through Step 2. I will try to address other points in Step 3.

 

[caroline01]

@sammie2019 Thank you so much!

 

[summerwindslady]

@caroline01 Which term insurance you've boiled down to eventually? I've spent some time researching through coverfox but I'm still unsure.

 

[thedwarf]

@caroline01 > Term Insurance

Look at Claim Settlement Ratios. HDFC and ICICI have decent ratios. Look who's giving you a better premium amongst these two. About coverage, I would recommend a cover of 10X of annual income or 1 crore, whichever is higher.

>80C

PPF is not bad at all. At your age, you can take risks with equity, but PPF is one of the best debt instruments that carries sovereign guarantee and is EEE (interest exempt from taxation). Am glad you didn't fall into insurance agents' traps like so many of my friends. Try to keep maxing PPF and also putting in debt.

> Marriage Expense

As and when you plan to spend, do think twice or thrice before spending on every item. In my opinion, people burning their life savings on their kids' weddings(which typically last a few days) is stupid. I know your case is different, since you yourself are saving.

 

[sleighsoulful]

@sammie2019 Thanks for the advice. Waiting for steps 2 and 3.

 

[nafetsduck]

@sammie2019 Yes. This kind of thing is exactly what will help. While it is definitely true that investors should understand the theory/reasons behind investing in a certain way (which is probably why most advice-givers don't want to directly give fund names), it would be useful if there are straightforward suggestions when the investor is trying to bridge the gap between I-only-know-FDs to seasoned investor. Often, a single blog-post/article even in respected sites like Freefincal will list 8 ways of picking funds, all of which lead to different fund names. While I understand that it is my ignorance that causes me to be frustrated by such nuanced/accurate info, this kind of approach does lead to years of action-paralysis to new investors like me. So thanks a lot !

One other question I would love to have addressed in this series if you have the time: For first time investors like me, even if I have bothered to read up on investing/asset allocation etc and picked funds, there is always a question in my mind of whether I'm doing the right thing, whether the conclusions I've made as a result of my reading are correct. It appears to me like having professional advice (someone with whom I can vet my ideas) would be really useful. Could you also talk about how to pick professional CFPs to get advice from, and in the spirit of this same post, give specific recommendations ?

 

[sammie2019]

@nafetsduck

there is always a question in my mind of whether I'm doing the right thing.

Well, there is really no way to sort that out. For example, me and pattu would differ on the exact fund selection and asset allocation. while vineetr and me are miles apart! So, there is no real right answer or best answer. It all boils down to whether you have understood yourself and your conditions (you are the best person to do that) and whether the given selection is "good enough". Don't bother with the best. Even in this post selection, you will find guys who are somewhat right in recommending against a fund with only SOV/AAA papers and others doing it against a fund with non SOV papers.

Personally, I don't have anyone to recommend in the CFP space, since I haven't interacted much. And whoever I have interacted with, is going to get cut across !!

If you have any doubt, send me a PM. Or /@profmaliki. Or Pattu (of freefincal). Or /@gunderson500. Only 4 recos from my side.

 

[annacola]

@sammie2019 Good writeup. I wish I had the patience to write in such detail.

Minor nitpicks:

Need to have diversification in liquid funds. In the wake of IL&FS, its sort of plain to see that its necessary. Might want to add this.

Arbitrage funds with better tax efficiency might be worth a mention.

Liquid funds with similar returns (PPFAS @ ~6.3%) to a savings a/c (upto 6%) might not be the best thing. (I understand the sovereign holdings advantage but still).

 

[sammie2019]

@annacola Thanks.

I don’t think there is need to diversify till the amount of say 50L in a fund. The inconvenience is not worth before that amount. Even after that value, I will want to really assess if getting two or more funds for same purpose is really a beneficial thing or not.

I don’t recommend arbitrage funds because of the riskier way they earn money. Similarly, equity arbitrage funds are also a no go for me. Basically, put money in something on its own merit and not just because the current tax laws are favorable. Make a plan which can work in any taxation system with minimum issues.

PPFAS liquid can earn more. But returns are not that important. The relevant investor would have parked money in a SBI, ICICI or HDFC bank, in most cases.

 

[summerwindslady]

@sammie2019 Please help me understand why should I park my funds in a liquid-fund while my savings account comfortably returns me @6% p.a

 

[inquiringmama]

@summerwindslady Sorry to butt in, but which bank's savings account are you using? I'm surprised a SA gives 6% interest

 

[eyelovesjesus]

@inquiringmama YesBank gives 6%

Kotak gives 6%

 

[summerwindslady]

@inquiringmama Kotak SA. And I think there are others as well.

 

[eyelovesjesus]

@summerwindslady Debt funds are better tax efficient than SB,FD,RD, esp for money held for more than 36months. this video

 

[roroberto]

@sammie2019 Thank you so much. This is great service to the community. Waiting for part 3 to come up.

 

[charliegirl_24]

@sammie2019 Is this still relevant?

 

[meown1]

@sammie2019 Good initiative.. Waiting for step 2 and 3