Q) I am a 21-year-old student. I want to invest some money in the future. Between Systematic Investment Plan (SIP), mutual fund, and shares, which is the best? Please suggest the minimum and maximum investment amounts.

Manjesh Kumar

A) SIP is not an investment by itself. It is a method of investing where you automate the process of investing periodically. The actual investment will be a mutual fund, stock, or ETF.

Since you are just starting with investments, avoid directly investing in stocks. Stocks require a thorough understanding of markets, company financials, business, and so on. Go for equity mutual funds instead to invest in stock markets.

To decide which funds to invest in, the starting point needs to be your risk and timeframe.

For example, equity mutual funds need at least 5-7 years to deliver, will see return fluctuations, and are high risk. Debt mutual funds that invest in corporate bonds, government bonds, etc are lower risk and need a shorter timeframe.

If you are going for equity funds, try to set aside some investments in safe instruments such as fixed deposits as well.

In equity, start with a large-cap Nifty 50 index fund. Add other more aggressive funds as your understanding improves and the investment amount increases. For a lower-risk way to participate in stock markets, opt for a hybrid aggressive fund that mixes equity and debt.

The investment amount is up to you. Funds set minimum amounts, but these are usually low. Start investing with whatever you have; starting early even with small amounts will pay off more than delaying investing for larger amounts.

Q) I’m a Defence personnel, earning about ₹50,000. I want to invest ₹30,000 from this. Please help me in developing an aggressive portfolio.

Umed Singh

A) Ensure that you have safe investments outside this portfolio such as fixed deposits or debt mutual funds. For your portfolio, we are assuming that you can remain invested for at least 7 years.

Split this amount as follows — ₹7,500 each in a Nifty 50 index fund and a large-cap based active flexicap fund, ₹4,500 each in the Nifty Midcap 150 index fund (or an active mid-cap fund if you wish), and an active smallcap fund, and ₹3,000 each in a corporate bond and a short duration fund. This will make an 80-20 equity-debt split.

For a less aggressive portfolio, reduce the equity to 70-75 per cent by reducing from all the equity funds and putting this in the corporate bond fund. Review your portfolio at least once a year to make sure that fund performance still holds good.

(The writer is Co-founder, PrimeInvestor.in)