Got a question about your money? What you should or should not do with it?

Our expert Devang Shah has the answers.

I'm 27 with a salary of Rs 2,40,000 per annum.

I have two younger brothers and share the household expenses with my father. This sets me back by Rs 5,000 every month.

I manage to save between Rs 6,000 and Rs 10,000 per month.

I have three life insurance policies for which I pay Rs 25,000 as premium every year. Every month I buy a National Savings Certificate worth Rs 1,000.

I plan to get married next year.

In what way can I earn a higher return on my investments?

- Abhijit Dutta

Hi Abhijit,

I truly appreciate your efforts to look after your family financially.

The only way of getting a higher return than what you currently earn on your NSC investments is to consider equity investing. However, you need to give yourself a 10-year timeframe to be able to make the most of such an investment.

On a more practical angle, I would suggest that you reconsider the investments products of insurance companies as they are usually very expensive.

What do I mean by investment products of insurance companies? Any product that gives you money back while you are alive is an investment product of some sort. Higher expenses on insurance products pull the down the return you are likely to make on the product.

Assuming that you end up paying nominal or no taxes currently, you should consider using the post office monthly income scheme as it gives the same returns as NSC and also a bonus of 10% if you keep the money locked in for six years.

You will have to find a way of keeping the interest payouts reinvested, otherwise you will end up spending the money.

Money that you are not going to need in the next 10 years could be put away in an equity mutual fund like HDFC [Get Quote] Equity Fund or Prudential ICICI [Get Quote] Discover fund. Opt for the growth option and not the dividend option. 

Ideally, you could invest around Rs 500 per month by way of a Systematic Investment Plan. This means that every month, a fixed amount is automatically credited to your mutual fund and you get the corresponding number of units. Over the years, you could keep  increasing this amount.

I do hope that helps.

• Get money savvy in 2006!

I am 23 with a monthly income of Rs 15,000. I am currently servicing a bike loan of Rs 1,150 per month and my monthly expenses amount to Rs 7,000.

How do I start saving? What is the risk when I start investing?

- Sandeep

I too have a question on risk which I must pose to you. What do you mean by risk?

In common parlance, risk is used as a term to express the possibility of losing the initial amount of money invested.

Let's say there is an investment product which offered the possibility of, say, a 12% per annum return. But, you are only guaranteed that your initial investment will be returned. Would you say it is without risk? How would you rate it compared to a product which offers, say, a guaranteed 6% per annum return?

Can we look at risk as the possibility of not achieving our financial goals?

As we keep our money lying in bank savings accounts, inflation and taxes slowly but surely eat away at their value. Without issuing a single cheque, we actually lose money from under our very nose because the same amount cannot buy the same things after a few years.

To quote the author of Rich Dad Poor Dad, the greatest risk is of not knowing.

So how do you start investing?

By putting your money in low-risk and low-return products. If your tax bracket is zero or nominal you could consider post office schemes like National Savings Certificate, post office monthly income scheme or post office deposits.

You should start getting familiar with mutual funds. You could start with a floating rate fund like Grindlays Floating Rate Fund � Short Term Growth. These are funds that invest in instruments that have a floating (and not fixed) rate of interest.

Eventually you will need to get familiar with investing in equity. Fortunately, you have age on your side and even if you learn everything about mutual funds in the next few years, you have plenty of time to put that to good use and your money into good investments.                     

Illustration: Dominic Xavier

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