Guide for a College Graduate to Invest His Money

In Financial Planning by Gunjan Massey1 Comment

It’s never too early to invest! You may be a recent college graduate making your first forays into the job market and earning a small income, but it shouldn’t deter you from choosing a good investment vehicle. Developing a habit to save early on becomes a way of life, which ensures a secure financial future.

So, where should you invest your money?

It begins with good planning

Build up the right wealth-building strategies early on to lead a happy and comfortable life. Develop your financial goals and create plans accordingly. An effective blueprint is the key, so if you find yourself deficient in this regard, take professional help to chart out a course. A thorough need-based dissection of available vehicles is crucial. Your decisions should always be situation based.

How important is insurance?

Those who want to purchase insurance should ideally opt for a Term Plan in the early stage of life. By rule of thumb, it should be 15 x the annual income. For example, currently your annual income is INR 5 Lakhs, with INR 75 Lakhs sum assured. Based on your habits, health, and age, a Term Plan will cost you between INR 10,000-INR 12,000. Units Linked Insurance Plans (ULIPs) and Life Insurance is not advised at this stage. Even term insurance is a waste, if you do not have any dependents to consider currently. Employer-sponsored health and accident covers would be sufficient for you now.

Should you consider property investment?

When you are starting out in the job market there shouldn’t be a hurry to purchase your own home. You should postpone property investment for some years until you build a sizeable corpus for the same. It would be best if you invest your savings in other vehicles, which will earn you rich dividends later.

Don’t ignore the importance of an emergency corpus

Accidents are a part of life! So, when you are earning money, always keep aside some funds to take care of the unexpected. Ideally, build a short-term corpus that can easily cover your expenses for six months. Reliance on credit cards is not the way to go. What happens if your employer suddenly decides to give you a layoff notice? What are you going to do then?

Deal cleverly with your education loan

Did your parents take education loan to help you reach your academic goals? Now that you have landed a job, naturally they expect you to pay it all back as quickly as possible, isn’t it? In spite of the escalating interest rates, reaching almost 12%, you shouldn’t hurry and spend your total surplus in repaying the loan, because such loans offer you significant tax benefits.

Ultimately, where should you invest?

Equity investment no doubt contains significant risks, but this shouldn’t be your reason to stay away from them completely. Instead of going for a direct exposure, why don’t you consider mutual funds? Through Systematic Investment Plan (SIP), a monthly investment of INR 3000 grows into INR 1 crore in 30 years, at 12% per annum returns!

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