In the 11th episode of Question of Money, Aarati Krishnan, Consulting Editor, businessline, answers some of the queries on personal finance and money management from young viewers. Check out the video for more.
1. If I don’t maintain my demat account properly, will it affect my CIBIL score?
No. Credit bureaus like CIBIL track only transactions relating to your loans – how many loans you take, for what value, whether you’re repaying them on time and so on. They do not track your assets. A CIBIL score reflects your loan repayment behaviour. A demat account is meant to house assets such as shares, bonds, ETFs and mutual funds. So nothing you do with your demat account will affect your credit score.
If you don’t use your demat account for a long time it can become dormant. The shares you hold in it will remain unaffected. But if you forget about the account, then the periodic charges like account maintenance charges may remain unpaid and you may have to reactivate the account with an activation fee. As long as you pay these charges on time, there’s no problem with simply holding on to your demat account without transactions.
2. I am 50 and a software engineer. What corpus will I need to get a passive income of Rs 1.5 lakh a month?
We assume you are asking this question with early retirement in mind. To actually help you retire, the passive income will have to start at Rs 1.5 lakh a month and grow with inflation over time.
Therefore, the corpus you need will change based on when and how long you need this income, inflation rate, the return on your investments and other assumptions. If you plan to retire rightaway and start with Rs 1.5 lakh a month which will continue for the next 35 years until you turn 85, you will need a corpus of about Rs 5.2 crore, assuming a 6% inflation rate and a 7% return on your corpus into the future. If you live longer than planned until 90 and earn a return just equal to inflation, then the corpus needed will be upwards of Rs 7 crore.
We suggest you use online retirement calculators to figure out the corpus using various assumptions.
3. I am planning to invest in stocks. I have an emergency fund of 1 Lakh and earn a sum of 35000/- in a month. How much of it should I invest in stocks and how do I choose the stocks that I should invest in?
If you are a new investor just starting out, it will be better to acquire a stock market exposure through equity mutual funds. When you try to buy individual stocks on your own, there’s a high chance of picking the wrong stocks and losing money. Do watch our earlier video on what you need to be a direct stock investor.
You can instead start a SIP in an index fund – say a fund investing in Nifty50 or Nifty100 which capture the top 50 or 100 stocks in the market and this will give you stock market linked returns over time. Usually it is desirable to divide your investments into equity and debt based on your risk appetite. So if you have Rs 5000 to spare, you can divide it in the ratio of 60:40 for instance between stock and debt investments.
4. I have an average CIBIL Score of 630. How do I improve it?
Set reminders to repay loans and EMIs on time. Try to maintain a good repayment record on a older credit card or loan. Don’t max out your credit limits on cards, set them so you use only a fraction of the limit. Try not to take overlapping loans. Take a new loan after repaying an old one.
5. I am planning to get married in 2025. I don’t want to trouble my parents for some of its expenses. I have a salary of 45,000. How do I save 2 lakh within an year? My monthly expense is close to 25,000. Should I reduce my expense to reach this target?
You have only a year to get to your goal of Rs 2 lakh, so this really shrinks the kind of investments you can consider. With this short time period, you should absolutely avoid investing in riskier options like equity or hybrid mutual funds, shares, real estate or gold to get to your target. Bank deposits seem to be your best bet. Recurring deposits with leading banks which fetch you 7% pa can get you to Rs 2 lakh with a monthly investment of Rs 16000. You can consider RDs with small finance banks like Equitas which offer better rates of 8% plus to get you to the sum.
6. I am a 35 year old man, I work in the IT sector with an annual income of 5 lakh. How do I plan a retirement fund for myself?
If you are a full time employee you must already be contributing to the EPF via your employer. If this is at the minimum level, you can increase it for higher retirement savings. But the EPF is a somewhat rigid vehicle and if you need more flexibility you can open a PPF account and an NPS account. The PPF allows you to contribute upto Rs 1.5 lakh a year with returns of about 7.1% at present. The returns are fixed and government guaranteed. The NPS allows you to invest any sum above Rs 1000 a year divided between equity, bonds and government securities so that you accumulate a retirement corpus. Do watch our earlier videos on EPF and NPS. Use online retirement calculators to figure out the size of retirement corpus you will need and the investments you need to make towards it.
(Host: Aarati Krishnan, Co-host & producer: Anjana PV, Camera: Bijoy Ghosh & V Nivedita)