There is no one-size-fits-all solution.
And that’s true, especially when it comes to investments.
Your goals, existing investments, job stability, financial dependents, all play a vital role in determining the best investment plan for you.
In this guide, I will present an investment plan for each of your life stages.
Recommendation: To comprehend the investment plans for each life stage, please read about asset classes and asset allocation.
The Best Investment Plan – By Life Stage
#1: Student
“I have saved up Rs 15,000. Currently, in my second year of college. Is it too early for me to start investing?”
I was surprised.
A 19-year-old engineering student wrote to me.
Not many students think about saving money. But if you do, you are on the right path.
It’s never too early to save and invest.
Recommended Savings Plan
Allocation | Asset Class | Investment Product |
75% | Equity | 100% in Nifty 50 Index Fund |
25% | Cash | 100% in Bank Savings Account |
Pro Tip: You can invest 100% in equities since you are young. However, you need a buffer for unplanned expenses. The 25% cash in your bank account will help you manage without depending on your parents.
#2: Just Graduated – First Job – Early 20s
I still remember my first salary.
It was less than 50% of the money I used to make as a consultant. But it was special.
And soon after, I received my second, third, and other subsequent salaries. But I never saved enough.
After all, how does saving Rs 5,000 monthly matter?
I didn’t know the power of compounding back then.
If I had saved Rs 5,000, every month, for the last 10 years in equity, I would have more than 10 lakhs. And that’s assuming a moderate return of 10%.
Not chump change, right?
Here’s the recommended investment plan for your single life:
First, max out EPF + PPF (1.5 Lakhs). Of the remaining, invest as follows:
Allocation | Asset Class | Investment Product |
75% | Equity | 75% in NIFTY 50; 25% in NIFTY NEXT 50 |
15% | Fixed Income | 100% in a GILT Fund |
10% | Cash | 100% in a liquid fund |
#3: Single – Late 20s
When you enter your mid and late twenties, your priorities start changing.
Your salary increases, marriage is on the horizon, or you might want to go for higher studies.
Here’s the recommended investment plan for your late 20s.
Max out your provident fund – EPF and PPF (1.5 Lakhs total). Of the remaining amount, invest as follows:
Allocation | Asset Class | Investment Product |
25% | Equity | 100% in NIFTY 50 |
50% | Fixed Income | 50% in GILT Fund; 50% Bank FD/RD |
25% | Cash | 10% in Bank Savings Account; 90% in a Liquid Fund |
Are you surprised to see lower equity allocation?
In your mid-20s, you have a lot of upcoming expenses that are less than five years away. And equity is generally not recommended for the short-term.
#4: Married Without Kids
Your whole life changes when you get married. No matter how much you prepare, you can never fully comprehend the scale of change.
Tip: If your spouse works, plan investment as a family. While both partners can manage separate investment accounts, the asset allocation should be mapped across all your accounts.
Here’re the investment options for married couples without kids.
As always, max out your EPF and PPF up to the max limit of Rs 1.5 Lakhs.
Of the remaining investment amount, invest as follows:
Allocation | Asset Class | Investment Product |
75% | Equity | 60% in NIFTY 50; 30% in NIFTY NEXT 50; 10% in a fund with international stocks. |
15% | Fixed Income | 50% in GILT Fund; 50% Bank FD/RD |
10% | Cash | 10% in Bank Savings Account; 90% in Liquid Fund |
#5: Married With Dependent Kids
Your life undergoes a drastic change once again when you have kids.
Here’s an investment plan if you are married and have dependent kids.
Max out your EPF + PPF (Max Rs 1.5 Lakhs). Consider adding NPS to your mix. This is earmarked for your retirement.
Of the remaining investment amount, invest as follows:
Allocation | Asset Class | Investment Product |
60% | Equity | 60% in NIFTY 50; 30% in NIFTY NEXT 50; 10% in an international fund. |
20% | Fixed Income | 50% Bank FDs/RDs, 50% in GILT funds |
10% | Cash | 10% in your Bank SB account; 90% in one or two Liquid Funds |
10% | Mixed | Investment for your kids. 50% in products like sukanya samriddhi yojana; 50% NIFTY 50 Fund. |
Note: You can open a mutual fund account for your child. You will be the guardian and can operate and invest on behalf of your child.
#6: Married With Kids Who Do Not Need Support
Once your kids are financially settled, you can start focusing 100% on your financial life.
Now is the time to accelerate and save for your retirement.
The recommended plan for you is as follows:
Max out the limit for EPF, PPF, and NPS combined. The remaining amount, invest as follows:
Allocation | Asset Class | Investment Product |
60% | Equity | 75% in NIFTY 50; 15% in NIFTY NEXT 50; 10% in an international fund. |
30% | Fixed Income | 50% Bank FDs/RDs; 50% in GILT funds |
10% | Cash | 10% in your Bank SB account; 90% in one or two Liquid Funds |
Note: As you near retirement, reduce your equity exposure. However, zero equity exposure is not recommended.
#7: Retirement – 50 to 75-Year-Old
Ah, the golden time.
You worked hard over the past several decades. Now it’s time for you to rest and lead a peaceful life.
If you have a defined pension, consider yourself lucky. You will get inflation-adjusted pensions throughout your life.
However, if you are like the millions of Indians who will not receive pensions, your investments will need to work extra hard.
Here is the recommended investment plan for you during your retirement phase.
Allocation | Asset Class | Investment Product |
30% | Equity | 90% in NIFTY 50; 10% in an international fund. |
60% | Fixed Income | 50% Bank FDs/RDs, 50% in GILT funds |
10% | Cash | 10% in your SB account; 90% in one or two Liquid Funds |
Note: You need to draw down money for your living expenses. Move the required amount from Fixed Income to Liquid every three months. Move from liquid to bank account as needed. You can also set up an STP (Systematic Transfer Plan).
#8: End of Life – 75 Years +
“In this world, nothing can be said to be certain except death and taxes”
Benjamin Franklin
As we enter the final phase of our lives, we need to be mentally and physically prepared.
Here’s a recommended plan for when you enter your late 70s.
Allocation | Asset Class | Investment Product |
20% | Equity | 90% in NIFTY 50; 10% in an international fund |
70% | Fixed Income | 50% Bank FDs, 50% in GILT funds |
10% | Cash | 50% in your Bank SB account; 50% in 1 or 2 Liquid Funds |
Note: If you haven’t already thought about inheritance, now would be an excellent time to plan your wealth distribution. Consider setting aside a portion of your wealth to the less fortunate.
Why Picking The Best Investment Plans With High Returns Often Fails?
Why do financial scams happen?
One word – Greed.
Often, people chase high return investments. Most of the time, they fail.
High returns come with high risk. And most people are not capable of correctly estimating or mitigating risk.
Here’s how much returns you can expect from your various investments:
Asset Class | Expected Return |
Equity | 10-12% |
Fixed Income | Inflation + 2% |
Cash | Negative Inflation Rate |
Cash Equivalents (Liquid Funds & Ultra-Short Term Funds) | Inflation + 1% |
Note: The above chart can serve as a guide to use for planning. However, depending upon market conditions, the numbers can vary a lot. E.g., equity returns might have been 18% until last year. However, the year you want to withdraw, it can crash to -10%.
Customizing Your Investment Plan
The investment plans listed out here are static. Meaning, if you are married with kids, the recommended equity investment is 60%.
But that doesn’t mean that you invest the same percentage when you are 30 as well as 60 years.
You need to adjust your asset allocation based on your age.
FAQ
What about alternative investments?
There are several investment avenues for you in addition to the options listed on this guide.
You have PMS (Portfolio Management Service), Angel Investing, Chit Funds, AIF (Alternative Investment Funds), and several others.
Depending on your risk appetite, you can choose to invest in any of these. However, make sure you select alternative investments only after the basics are covered.
How does my risk profile affect my investments?
A risk profile is often used by advisors to recommend funds for you. However, I do not believe that a risk profile accurately portrays the risk an investor is willing to take.
Saying that you will hold on to your investments if the market falls by 50% is different than actually seeing your portfolio crash. The emotions you experience are very different.
In my experience, it’s better to focus on the risk profile of your goal; Not your personal risk profile.
Can you reach your goals by investing in safe options like FDs?
No?
Then, you need to invest in equities, even if you are not willing to take the risk.
I invest in my goals. What plan would you suggest to reach my goals?
If you are a goal-based investor, your overall allocation remains the same. However, at each goal level, your allocation and product selection can differ.
Here’s a detailed guide I wrote on why you need to re-think goal-based investing.
I don’t like taking risks. Can I invest only in fixed income?
Maybe.
Depending upon your current financial situation and your goals, you can perhaps afford not to take risks and stay invested in safer investments.
However, most people, especially if you don’t have a pension, will not be able to retire without investment in equities.
I run a business. There’s already enough risk. Should I invest in equities?
Yes. While running a business is risky, you also need to diversify your risk. Investments in an index like NIFTY 50 allows you to diversify risk with smaller amounts.
I want to invest directly in stocks. How do I tweak my plan?
No. If you are confident about your ability to make money through stock selection, go ahead – split equity mutual funds and share market investing within your equity allocation.
How can I personalize these investment plans?
Speak with a financial advisor. Or keep reading, develop enough knowledge, and do it yourself. The main area you need to focus on is getting your asset allocation right.
Why do you stick with index funds? Why not arbitrage or thousands of other schemes?
I believe index funds will serve the purpose for most investors. Most other funds add complexity. And the underlying holdings are more or less the same.
However, you are free to explore other investment schemes and choose the ones that fit your financial needs.
Which is the best investment plan in India for middle class?
Whether you belong to the middle class or the elite does not matter. Look at what happened to Anil Ambani. The best investment plan will depend on your goals and asset allocation.
Are mutual funds safe?
Probably.
Most of the liquid mutual funds are considered safe. However, I have seen cases where even short-term funds crash due to exposure to stressed companies that default on their bond payments.
However, when you compare it to DIY, mutual funds are often safer because it gives you instant diversification.
Remember: The higher the risk, the higher the potential reward. So if you need to build a large corpus or reach your goals faster, you need to take risks with mutual funds.
A word of caution: The investment plans are meant for informational purposes. Hire a financial planner to create a customized investment plan for you.
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