Guide to invest short-term stipend

If young earners choose equity, they face the risk of bearish equity markets or decline in investment value when they need the capital.

Nov 27, 2015 11:11 IST India Infoline News Service

Feeder Funds
There are many fresh graduates who start their career as trainees in a large company. They intend to work for two to three years and then plans to pursue their masters’ degree. In order to support higher education, they want to save some funds from current job.

The problem is they are not sure about the investment instruments that they should opt for making good profit in short-term. In most of the cases, parents advise them to invest in gold and later take an education loan to support their higher education.

What should be the investment plan?
The fresh graduates earning small stipends should first consider their saving potential. Being trainees and young earners, there will be many indulgences they would like to spend their salary on. It is at this time, they have to figure out how the earnings can be split between discretionary expenses such as tourism, eating out and entertainment and mandatory expenses like travel, bills and rents.

These people can manage mandatory expenses by taking informed decisions on commute modes and rent. Then they can place a limit on discretionary spending and cap them to say almost 20% of their total salary. After planning for mandatory and discretionary expenses, they can manage to save regularly. The problem for young earners is that they want investments to surge in value to fulfill their needs, but they cannot give these investments time to perform.

If these young earners choose equity, they face the risk of bearish equity markets or decline in investment value when they need the capital. The same concept stands true for gold. Traditional investments like bank deposits yield a low return.

In such a scenario what may work for young earners is hybrid investment choices such as dynamic funds, balanced funds or debt-equity funds. These are funds providing a balanced mix of debt and equity investments.

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