The Hindu Business Line : ‘Make your pile – but don’t wait to invest’

Rather than looking at home loans as a tax-saving tool, you need to look at them as a long-term decision and evaluate whether the EMI is appropriate for a house that would serve you over the next 5-10 years at least.

MR ANIL REGO, CEO, RIGHT HORIZONS

“Is insurance an investment?” “How much of my pay can I commit to a home loan?” Some of these questions, faced often by young people who have just embarked on their career, are answered by Mr Anil Rego, CEO of Right Horizons. Right Horizons is an investment advisory and wealth management firm that specialises in advising working people on their personal finance needs. The firm advises clients on real estate investments, mutual funds and insurance, apart from tax planning and helps them with financial planning through their career.

Aarati Krishnan

Should a young investor who is just starting a job and beginning to save money start investing in equities or wait to accumulate comfortable savings before entering equities?

While young, one normally has fewer responsibilities and hence can take a higher level of risk. Further, at this age, it is difficult to build up large surpluses and monthly investments are easier. A monthly investment (Systematic Investment Plan) in equity mutual funds can definitely be considered by young investors, especially in tax-saving ELSS funds. This will not only give good returns but also save on tax. Don’t wait for accumulation, money normally gets easily spent at a younger age and ‘Tomorrow never comes.’

While creating a portfolio, what factors must one keep in mind to determine the percentage of allocation to liquid and illiquid assets?

One needs to understand one’s spending pattern and needs and accordingly plan for liquidity. In the initial years, it is difficult to exactly assess one’s needs and savings are not very large, hence one could go in for liquid assets such as Mutual Funds and Bank Deposits that can be terminated. A small portion can be invested in insurance as a long-term asset. As time goes by, one can start looking at illiquid assets, such as Real-Estate.

Should one view insurance (on life) as an investment option when initially creating a portfolio or purely view insurance as a sum allocated for uncertainty?

Young investors now have the option of investing in ULIPs that provide return as well as cover. I would view this as allocating some money for the long term.

When you invest for the long term, the compounding is higher and wealth creation is substantial. One can start off with a small cover and increase that as time goes by, as needs and responsibilities increase.

Many young investors find it convenient to put a bulk of their money in property as it provides substantial tax-saving. Is it right to view investment in property (and the loan taken for the same) merely from a tax-saving perspective?

Ideally, one could start off with liquid avenues as mentioned earlier and then start looking at illiquid avenues. We find people buying a small house based on their budget in the initial years and realising within a few years that it is too small.

The real-estate market has a lot of transaction costs, such as registration, car parks, deposits for utilities, maintenance, etc, and thus a short-term decision may be inappropriate.

Rather than looking at it just as a tax-saving tool, one needs to see it as a long-term decision and evaluate whether the equated monthly instalment (EMI) is appropriate for a house that would serve you over the next 5-10 years at least.

In the initial years, one would anyway be taking advantage of the HRA on the rent one pays — so the incremental benefit may not be as large as one thinks.

How can an investor meet major expenditures such as buying a car or a home theatre system with minimum disturbance to the asset allocation pattern/the existing returns enjoyed?

One should avoid running up bills on a credit card as the interest is high — this is one of the typical mistakes we find youngsters making.

Ideally, you could build your investments on a monthly basis and a part of investments can be regularly used to withdraw for various needs.

Most Indian investors like to own property early in their life and commit themselves to a fairly high EMI. What proportion of one’s earnings should be towards payment of loans?

Since the expenditure pattern of people differs, a thumb rule may not apply here.

I would suggest one should commit not more than 75 per cent of one’s monthly surplus (income – expenses) towards EMI. Also keep allocating the balance 25 per cent to liquid avenues as this could really help out in an emergency.

More Stories on : Stock Markets | Interview | Investments | Young Investor

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Cairn India: Buy

‘Satyam has created a robust, de-risked model’

Index Outlook

‘Make your pile – but don’t wait to invest’

Options are forever

How to make foreign stints less taxing