A large number of new investors are joining the equity market each month, driven by their buoyancy. Here is a roadmap for these new investors to make a safe and smooth entry into the markets.
Create an emergency corpus: The purpose of this fund is to ensure that, in the event of an emergency, you do not have to dip into your longterm investments and disrupt their compounding. Accumulate funds equivalent to at least six months of monthly expenses. This money can be accumulated through a SIP in a liquid fund.
Medium-term corpus: Most younger people have a few near- to medium-term goals for which they should save separately. For example, they may want to buy a car or make a down payment for a house. They should accumulate money for these goals separately by starting an SIP in a short-term debt fund.
Long-term corpus: This is for truly long-term goals that are 15-20 years or more away, such as one’s own retirement, children’s education and marriage. For these goals, they may allocate as much as 80-90 per cent to equities, depending on their risk appetite.
Ideally, the first equity fund should be a largecap passive index fund, based on the Nifty or the Sensex. Stick to this fund for the first couple of years to get accustomed to the volatility of equities. Thereafter, consider moving to a slightly more diversified index, such as the Nifty Large and Midcap Index.
After a couple more years, consider investing in active funds. It is important to diversify across investment styles, such as value, quality, mid- and small-cap, momentum, and growth.
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Esta historia es de la edición October 2024 de Investors India.
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