A penny-wise consumer – A pound-foolish investor

By
Hemant Beniwal
43

Mrs. and Mr. Verma is one tough customer to handle. They haggles with vegetable vendors to save a couple of rupees, is always on the alert for sales and discounts schemes and quibbles with domestic help — the maid, the dhobi, the driver. They saves a few hundred rupees every month through these small bargains. And then they signs away thousands — sometimes lakhs — of rupees blindly in insurance or funds that brokers ask him to invest in. They look nowhere except for the “x” marks for signatures in the forms.

In many ways, Mrs. and Mr. Verma are true Indian Family — a penny-wise consumer, a pound-foolish investor.

A penny-wise consumer - A pound-foolish investor

Penny Wise, Pound Foolish

There is a British saying “penny wise, pound foolish.” It means, “making decisions with small amounts of money (pennies) that end up making bad sense for affecting larger amounts of money (pounds, as in Great British Pounds).”

I recently met a doctor couple who came to my office and when I saw their insurance portfolio, I could see that they have invested (they think its investment) over 12 lakh in last 3 years in different ULIPs from LICs to HDFCs to Reliance to Max and what not. Their total cost of insurance was over 4.5 lakh per year & still underinsured. Can you believe that?

A penny-wise consumer - A pound-foolish investor Click to Tweet

We Indians don’t understand finance very well and when it comes with investments, we make reckless decisions. When it comes to consumption we spend hours looking for the best possible deal but when it comes to investment we take hasty, unconsidered decisions that have little or no bearing on our financial goals. Given the rising financial and job insecurity— which have come hand in hand with increasing levels of prosperity—such a casual and illiterate approach to investing is inexcusable.

Sure, many people have begun to think of financial planning. But they never get down to doing it. It’s not uncommon to hear ‘I will retire at 50’; ‘I will start my own business at 40’; ‘I will have a second career’… But thinking to plan is not planning — it’s daydreaming and nothing more than that..

Sooner, not later, we all have to do financial planning of some sort. If you don’t do it by will, you may be in for a rude awakening.

The first step to financial planning is financial literacy. And if you are waiting for a reason to begin, it is right in your hands. At TFL, our endeavor is make Indians “FINANCIAL LITERATES”.

But does that means you should not hire financial advisor

Got a comment on “8 Most important Mutual Fund Questions”.
I am here for some advises from expert here. I have some amount (80,000) which I got by cancelling fixed deposit as it was gaining only 7%. I would like to have your views, where to invest this amount? Should I invest it again in bank FDs as the interest rates are high or should I invest it in lump sum to MFs as the sensex is down now.

Also please guide me some MFs for lump sum investment. I want to have a diversified portfolio as hubby has already lost 7 lakh in intraday trading 🙁

One more question, I am investing through MF distributor, do I need to pay any commission to him? Shall I directly invest through my bank or should I personally invest through each fund house . Why investing in MFs is so confusing?
My MF distributor told me that Investing through distributor, is better idea as I do not need to pay any charge for fund management, is he true? Please guide. Looking forward to hear from the experts.

I think this cartoon from XKCD hints something. My Reply to the query:

Just read your message – sorry to hear that you people lost Rs 7 Lakh in trading.
Don’t feel offended by what I am going to write now – I don’t want to lose a good learner like you.
See at one place you have lost a big money & on another place you have a hitch to pay financial advisor. This is a very common approach by people & it is called “Penny wise – Pound Foolish”. A good financial advisor would have saved you these Rs 7 Lakh & many more – people need to understand this. Being financial literate never means that you don’t need to hire financial advisor. Hiring a right financial advisor is a time consuming process but may be one of the most important thing in your financial life.

One more thing few people think that finding few good performing mutual funds is Nirvana but how you will control your behavior. Then they will say we are very patient about our investments – we are investing since 2005 & we never sell in fear. (even in 2008 when market was down more than 50%) And they are very sure that they will not do this in their lifetime – so my question is which one was your equation in 2008:

  1. Your income was 10 Lakh & your equity portfolio size 5 Lakh. Or
  2. Your income was 10 Lakh & your equity portfolio size was 1 Crore.

If your answer is 2nd you may not need investment advice from anyone. THINK

Paying for Advice or Do it Yourself or Free Advice

Compare do-it-yourself investing/planning to do-it-yourself brain surgery. I wonder how anyone who lacks the proper education, training and experience could ever dream of going it alone.

Free advice is also available through TV, Newspapers, Magazines & latest trend personal finance blogs like TFL. But be very frank it is information & not knowledge. And let me also add – most of the blogs are run by people who understand Google GOD & Google Advertisement rather than your requirement or even basic finance in most of the cases. Free advice is also available through agents but you have already seen what happened with doctor couple.

How Much to Pay

Charles Schwab “Cheaper isn’t always better. If you found yourself on the wrong end of a significant legal action, would you get the cheapest lawyer you could find, or would you hire the best one you could afford? The same principle should apply when it comes to your investments. You certainly don’t want to pay more than is reasonable, but neither should you ignore suitability or quality solely for the sake of price.

Your financial goals and dreams are intensely personal, and more important to you than they will ever be to anyone else, even the most dedicated of advisors. But it’s possible to find an financial advisor to partner with, someone you can trust to deliver suitable, high-quality advice at a reasonable price. All it takes is some discerning effort.”

Would you like to share your experience?

RELATED ARTICLESMORE FROM AUTHOR

43 COMMENTS

  1. Hi sir,
    It will be an eye opener to many of us who are investing more and more in unit linked insurance plans. Now also people think that they are on right track but they aren’t.I hope that everyone who reads this article will like to have a good advisor who will help them to understand their financial life.
    Thanks Hemant ji for such an eye opener article.

  2. Hi Hemanth ji,

    I have been reading ur articles for a couple of months.first thing that stuck my mind was we must meet a financial planner to stream line our investments,but am not sure how to proceed.i feel its like going to a doctor..select one on a trail and error basis..can u give some tips on selecting a good financial planner and what r the expected charges as such..

    Regards
    Harika

    • Harika,

      I’m sure Hemant is going to answer this way better than I ever could, but this is a great question, and I felt compelled to give my 2 cents – so here goes.

      1. A good financial guy will ask a lot of questions about your finances and aspirations and will try to get a lot of in depth understanding of your situation in life and your aspirations.

      2. S/he will not sell you stuff that is loaded with commissions and heavy fees like a ULIP, fund of fund or mutual fund new fund offer.

      3. They will try to dissuade you from activities that are prone to losing money like day trading, market timing, buying and selling mutual funds regularly.

      4. They will have an emphasis on a diversified portfolio for you, and not just something that is loaded in insurance, bonds, stocks or even gold.

      5. Finally, they will recommend products that make them earn lesser money in the short term. Ironically, the nature of financial products is such that a bad financial products will have more incentives for advisers to peddle, and a good financial product will have less commission and fee and will have less incentive for an adviser to push.

      If you get a feeling for these things in the initial interaction with your adviser then you’re on the right track, else you need a second opinion.

    • Hi Harika,
      I think Manshu & Anil has shared good points – which can help you in analyzing planner or advisor.
      We don’t choose doctor on trial & error – bcoz error can do blunder. But sometime in emergency we reach nearest hospital with expectation that doctor will be competent. In all other cases we have a set process of choosing a doctor – same should be done for choosing financial advisor.
      I have also written 1 article on how to choose financial advisor – where I have talked about what one should look in advisor.
      https://www.retirewise.in/2010/12/how-to-choose-your-financial-advisor.html

    • Hi Harika,
      I am not any kind of expert but I couldn’t resist putting in a word here. I feel all of us should keep Hemant and Manshu as our primary financial advisors!! I am dead serious when I say this. I find that they seem to give the best advice and they come through as very genuine. The only sad part is that many people are not aware of these websites and some others (like me) are aware but do not have the time to go through all that is up for reading.

  3. Hi Hemant
    In the first paragraph you have given a good description of a typical Indian middle class family. But my experience is slightly different. I live in a locality which belongs mainly to factory owners and shop keepers. I have seen the ladies arguing with their maids, dhobies, drivers, vegetable vendors, rikshaw pullers exactly as described by you. But when it comes to displaying their wealth they will spend any amount in beauty parlours, kitty parties, clubs on designer wear etc. I don’t think they have even heard the word financial planning. Their investment is mainly in property and gold. They don’t need any loans for buying cars and property as they are never short of cash. So we can call them penny wise pound foolish consumers but smart investors.
    The main strength of this class is their strong joint family system. Thirty years back when this locality was developed it was mainly occupied by young people who had just started their families. The houses were small and mainly single storey. Now as the families have grown people have simply added more floors and rooms to their houses to keep their families together.
    It seems that only salaried people living in metros and big cities having nuclear families are doing some serious financial planning.

    • Hi Anil,
      I partially agree with you but I really doubt these people don’t have LIC policies for investments.

  4. Thank you for the article. Could you please write a follow-up article on how and where to find a good financial planner and whether financial planners are even interested in taking clients who have small amounts for investment?

    • Hi Hemant/Reema/Mudit
      Reema has a valid point. I have watched many financial planners giving advice on TV channels as well as read columns in personal finance magazines where case studies in financial planning are given. I have noticed that in most of the cases the persons covered belong to metros or big cities and have high disposable incomes. This gives rise to the perception that financial planners are interested only in upper middle class people where the investors have large amounts to invest.

    • Hi Reema/Anil,
      I can tell you that there is a misconception in mind of clients that financial planners are not interested in working with small clients. But even this is true that you can’t hire best practicing planner.
      If you go through charles schwab quote “hire the best one you could afford?” – you have to decide what you can pay & definitely you will find a planner/advisor in that range.
      Now the question is “How much you should pay?” – this same question is asked by Harika. I think it should be around 1% of your after tax income (in first year it can be higher) – so now it is a task to find a right planner in this range.
      We don’t go to best doctor if we can’t afford him but still we find a right doctor who can cure us.

      • Dear Hemant,
        Thank you for that pointer: fees should be around 1% of annual income. And also for the link to the article on How to Choose Financial Planner.

        The Big Question is: Online or Neighbourhood Advisor? (The doctor analogy can’t be applied here of course.) Personally, I don’t have a problem trusting people over the net if credentials are established, but meeting someone in person will remain a different experience. On the flip side, visiting someone’s office for the first time needs more courage than visiting a website for the first time. For example, there is a big Bajaj Capital office near my place but I have never yet stepped inside to make an inquiry, but it’s easier to leave a comment online!!

  5. Hello Hemant and Manshu/Anil ji/Reema,
    First, I would strongly second Reema’s request for sharing with your readers a way to locate and access Certified Financial Planners who are well-trained and experienced in the filed. You can refer all of us to a website where we can access such a reliable database.
    Second, I would agree with both Manhu and Anil ji. A good financial planner must not only prepare and present a good and suitable financial plan for the client, but s/he should also insist the client to be in touch for a full cycle (say 6 months to 24 months). This is analogous to child planning that requires the gynecologist to be consulted before conception, regular visits and tests during pregnancy term, emergency check-up if some mishap occurs (like bumps or excessive vomiting or anemia, etc), and finally visiting the doctor even after delivery of child. The doctor decides if the delivery of the baby is to be normal of Cesarean. All these stages can be usually found in a typical financial planning scenario as well – identifying goals and risk profile (pre-conception visit), chalking out a plan (conception), regular feedback, followup and review of performance (diagnostic tests during pregnancy), emergency re-allocation/exit from investments (emergency check-ups), and finally achieving of financial goal (delivery).
    And, the story doesn’t end here … after a child is born we start consulting pediatrician (child specialist) for vaccinations and other regular stuff with children. Similarly, when one financial goal is achieved, we do not stop living, but we set ourselves another and possibly much higher financial goal to achieve. So, in essence a financial planner must strive to build a relationship than to earn his fee, because if a relationship based on trust is established which benefits the client most, the client herself/himself will be willing to shell out premium for personalised services received.
    regards,

    • Hi Mudit
      I agree with you that the most important thing is to have a relationship with your financial planner which is based on trust. This is something like having a family physician who is always available with his advice whenever there is a medical problem in the family.

    • Hi Mudit,
      You are engineer or doctor 😉 anyways great analogy. But relationship between planner & client is for whole life like a family doctor – which is mentioned by Anil & also hinted by you.
      I don’s fully agree with this “in essence a financial planner must strive to build a relationship than to earn his fee”. I don’t want to highlight this in negative context but I feel I am frank enough to say & you are mature enough to understand. A good planner will always work on building trust bcoz that will be foundation of long term relationship but he should be professional enough to charge right fees for his regular work.
      I keep saying “I don’t work for money but I don’t work without money”. 🙂

      • Hello Hemant,
        I completely agree with what you say – “I don’t work for money but I don’t work without money” – as although I am a full0time teacher (not a doctor or engineer) in a college but also give professional services to other colleges/companies as guest teacher/adviser. In the end “Ghoda Ghaas se Yaari karega to Khayega kya!!!!!!”. So charging the right fee is the right of any professional but the duty is more important as it affects the numerous clients of the professional and in the end the adviser her/him self , be that adviser be a financial planner or a doctor or an advocate or a teacher.
        What I was trying to say was that instead of killing the goose that is laying the golden egg (the client), one should nurture and nourish it and be content with the the eggs it lay daily(periodically). Here the moot point is – to grow by helping other also grow. And not making a killing in first fee (akin to front-loading of charges in ULIPs till last year) and forsake any subsequent communication with the clients if the plans go wayward.
        regards,

  6. hello Hemant/ Anil ji/Reema,
    Anil ji’s and earlier Reema ji’s observation about the financial planners chasing only the high disposable incomes of Metro-living-both-earning-neuclear-family investors are partly true. Obviously there are people in every sector and service area who are choosy about their clients/customers by design (i will not get into reasons). And that is not immoral or wrong and completely OK, I am a firm believer that until it is not infringing upon anyone’s dignity/rights everyone has full freedom to act according to their wishes.
    Now why they are only partly correct, according to me –
    1) most business channels/magazines/news-papers are based in big metros. So instead of having a small presence in a vast “Bharat”, they try to make their BIG presence felt in smaller “India”. It is also economically feasible for them.
    2) People who are living in smaller cities have usually aspirations to move to a big city or at least replicate that lifestyle in their hometown. So the sample cases can be sort of representative of a larger universe.
    3) Some times there are some cases who are of traditional (typical) nature as far as their investment strategies are concerned. Usually they are very few in numbers. One reason can be that the people working in a corporate culture is more willing to wash their linen in public or are at least not hesitant to talk on camera. Many people who are very vocal in their closed groups of friends/family are suddenly mute when they need to face the crowd (or camera).

    I also feel that instead of trying to apply each case directly to one’s own situation as it is, we must pick up tit-bits from each case study to reach a scenario that resembles our own. It should not be like allopathy where the doctor always prescribes crocin for fever and does not bothers to see if it is a symptom of some far removed reason the the body. Instead we can adopt the approach of homeopathic doctors who intently listen to every symptoms of the patient and give medicine A if the fever is due to tension or B if the reason is cold or C if the reason is a wound and so on. It insists that the patient be fully aware of whatever is happening to him and his body and thought process for accurate and RAAMBAAN type of treatment.

    • Hi Mudit
      I would like to share my experience with you. Recently I visited one fund house to make some investments in mutual funds. While I was waiting for the concerned person to arrive, I found three visibly angry persons also waiting there. I learnt from their conversation that they had made lump sum investments in lacs of rupees in one mutual fund scheme which was top performing around three years back based on the advice of a distributor of the fund house. They were villagers who had made large sums of money by giving their lands to builders. They did not know ABC of mutual fund investing. They were angry as they did not get the returns promised by the distributor.
      What I am trying to say by narrating this incident is that in recent years disposable incomes of many villagers have also considerably increased by selling their lands. FMCG sector has understood this and they have started chasing rural consumers. Unfortunately there are no financial planners available in villages. So rich villagers are spending their money on palatial farm houses, luxury cars and gold.

  7. Good article. We need to be aware of whether we are being penny wise and pound foolish.
    An example:When the agent tells us that he will give us some returns on first premium we let all our doubts fly out of the window. For we become short-sighted.

    We don’t allow people to drive the vehicle without taking a driving license test but we allow them to enter the complex financial world with little financial education. People hand shake on writing cheques, don’t know how to check the return they have earned or understand their risk profile. My friend is trading stocks so let me do, My neighbor is selling an insurance policy let me take it, the bank relationship officer is suggesting this fund which is doing great let me invest in it.Who cares if it is sector oriented fund?

    Talk of financial literacy means usually talk on how to invest, where to invest. But it is much more. And finances now are very different from our parents time when everything was government controlled but life was simpler.

    Yes we do not a financial advisior. The financial world is so complex but finding a good one..is like finding a needle in a haystack. Whom to trust is a big question.
    To find a good doctor we can easily ask our friends and neighbours but we shy from asking them for a financial advisor for talking about money is a big No No. TV and Google do not help unless you find sites like tflguide.com

    In my personal experience the conclusion I have come to is :I need to be fully involved as it is my money and yes have a finanical advisor…you might have to try many till you find the one who satisfies yo\u. And yes pay for the advice-as there are no free lunches in life and then the person giving it becomes answerable.

  8. A point I missed in my earlier comment:Financial journey is not a 100m race but a marathon. It is like playing a 5day cricket match and not a 20-20. So we need to plan it.

    Even if you have the best financial advisor if the financial world is crashing then you would also suffer as in 2008. For in a storm all boats will rock but only strong ones will be able to weather the storm

  9. Hi Hemant and BeMoneyAware/Anil ji, and all friends….
    As Anil ji has mentioned in a post the villagers were furious as they were promised the sky without being warn of the risks about investing in equity MF. This was a typical case of mis-selling and I would equate the so-called advisor to a road-side hakeem (quack) who promise to cure you with their innovative but complex to logically understand quick-fix solutions.
    As BeMoneyAware has pointed out, financial literacy is not only about when and how to invest it is much more as has been much reflected in the articles on this forum from time to time. Also to her/him “Even if you have the best financial advisor if the financial world is crashing then you would also suffer as in 2008. For in a storm all boats will rock but only strong ones will be able to weather the storm” is absolutely right.
    I usually give my students an example on their strategy to learn and understand a subject – If i can jump up to 3 feet from a flat surface, then surely I would be able to jump farther, say 4 feet, if I am standing on an elevated platform (like a stool). So when you start learning anything new first read the basic or first few chapters of the text, even if nothing gets into the mind, and then come to class and you would have raised your position at least by a few inches compared to other students. Similarly I started investing in equities and MF in around later half of 2008 and before that I was studying the finances and my own risk profile for almost 2-3 years. It was very difficult to resist the passion and adrenaline rush not to jump and ride the tides of late 2007 and 2008. So I parked all my investible corpus in FDs of 6 months tenure just to stop myself.
    That time the idea of financial planning was not not as popular as it is these days, only 3 years back! But the crash of 2008 made it immensely popular among the upper class and upper-middle class as they burnt their fingers most in this turmoil. Therefore leading media also sensed an opportunity and started talking about it as if they were the only saviours of investors. Even today investments in equities is confused with trading in them. This was exposed in a recent contest by a TV channel’s (Zee Business) hunt for India’s Smart Investor. I initially registered for it but later found out in rules and regulations that it was more about daily and intraday trades, so I did not participate in it. Even when I attend a few seminars and conferences on financial planning and investors meets, the main focus is very short term (less than a month) so anybody may be confused by the use of term investors for traders.
    That is why as Reema ji had earlier pointed out that a database of responsible (at least certified) financial planners is a huge requirement and it should be linked to a customer feedback as well as peer review to ensure more accountability and customer protection. An organization on the lines of ICAI may be envisaged for the purpose.
    regards,

  10. Thought of giving few inputs for people who are looking to chose a financial adviser. This advice comes from my experience of trial and error over the last 2 years. I finally have one adviser, whom i trust and who trusts me :). (My background – i’m salaried and have a slightly more interest in the topic of finance than a commoner). So, add the proverbial pinch of salt.

    1. Avoid the corporate types. Like Citi, ICICI, Bajaj or whatever be the name. They are not to be mistaken as advisers they are sellers at best.
    2. Don’t be fooled by “you don’t have to pay money for our advice” slogans. They are dangerous.
    3. A good adviser will first try to gauge you, on where you stand on financial literacy, financial habits, and whole lot of other things. And then advise.
    Anyone who has a ready set of recommendations, is a must avoid.

    4. I liked my own advisers model (I chose him after lot of trial and error, but won’t name him here because there could be conflict of interest) – First fix an appointment for talking (2 hours ?? or more) and charge a nominal amount for this appointment. Based on this conversation and clients judgement of advisers ability and advisers judgement of clients needs one can fix up a rate/charge for detailed financial planning.
    This works pretty well because you are not committing to give away 1% of your income to someone you can’t trust yet. But if the trust is established you don’t mind paying a penny to a person who can help you save pounds. Isn’t it ??

    • Thanks for the excellent advice. The only issue is that our country is full of advisers who fulfill your first two criteria!! The types mentioned under points 3 and 4 are a rare breed I feel.
      The problem of finding a good person is compounded if you happen to live in a small town (I live in one such place) and not in the metros. The so called “financial advisors” in my city (Trichur) generally talk to you assuming that you are a complete idiot especially so if you unfortunately happen to be a doctor (like me).

      • Dr. Biju,

        Thanks for your reply. Fortunately unlike medical advice physical presence is not a must for availing financial advice, and physical absence won’t affect the quality of advice that much. So i think location shouldn’t matter a lot. But finding the right adviser is still a big task.
        Having said that i have a favorable opinion about the lot who have their own blog’s and don’t mind sharing lot of information and being open to suggestions/criticism on it.

        This gives the client a chance to study their advisers knowledge and temperament before deciding on whom to go to. Now you tell me how many Doctors can claim to have at least this level of transparency ? 🙂 Just kidding…
        In fact in my case, I was very much convinced about the advisers temperament and knowledge even before i asked for an appointment. And it turned out exactly as i had expected.
        The financial advice industry is still nascent and there is not much word of mouth recommendation, that a perspective client can rely on. As per my knowledge I’m the only guy in my circle who has availed of such service!! And the nature of service is such that not many people will openly discuss about it even if they have availed it (just my observation). Hopefully things will improve in future…

  11. I fully agree with what you mentioned; especially about the financial advice industry being in it’s nascent stage. I felt happy to note that you managed to find some one good. I am not surprised that most of your friends do not have your inclination – that seems to be the general trend of the people in our country.
    Regarding the need for physical presence, I would like to make a comment – if you are trying to gauge whether a person is sincere, it is very important to note the “body language” of the person. I do agree that a face-to-face is not a must to get financial advice but it is always better.

  12. hello everyone,
    i am 21 from kolkata. i have started earning rs10000 a month. i hardly spend rs2000 a month as i stay in my fathers hotel. when i go through all your articles, one thing always strikes in my mind of investing money in appropriate areas. i am puzzled with the term INVESTMENT. i have least knowledge in this subject. please help me to segregate my money. i have already started saving rs2000 in recurring deposit handled by post office, in monthly basis.
    i am suffering from INVESTMENTOPHOBIA…..
    please do reply

    • Hi Rajnish
      It is good to know that just after starting earning you have decided to invest. If you invest systematically every month in diversified equity mutual funds you can build a good corpus in the long term. Investing through monthly SIPs is the best way. To begin with start a SIP in a balanced fund like HDFC Balanced Fund. Once you begin to understand the investment process you can select one or two more funds.

      • thank you sir for the helpful reply. still there are some questions in my mind. how much to invest in HDFC Balanced Fund? will HDFC Balanced Fund generate a good return? shall i invest in insurance plans? i believe in long term goals.
        awaiting for your reply.

  13. Hi Rajnish
    You can keep some amount in bank fixed deposits to meet your short term requirements and the balance amount in HDFC Balanced Fund. Nothing can be said for the short term but in the long term you can get inflation beating returns.
    You can consider term insurance when you get married. You don’t need any insurance if you have no dependents.

    • thank you sir.
      there are so many advises i get from various people. all advises puzzles me like a burst balloon.
      As per you which is the best securities company in India?

  14. Hello Rajnish,

    21 and starting on your investment journey. Congratulations. You have started in the right direction by joining the forum like tflguide. You are not alone. We all have struggled infact are struggling to understand the financial jargons. For sadly one one
    We would not allow one to drive a car without getting a driving license yet we allow people to enter the financial complex world without any financial education.
    ArticleEducated but have No Financial Education covers similar frustration,

    Just when you read you begin with ABC same when you have to start your financial journey you begin with understanding the various terminologies. You need to understand about how much risk you can take, how much would you like in equity, mutual funds, debt which comes under . Financial planning

    As you have time on your side you can achieve your financial dreams.
    Not get disheartened for as if there is no pain there will be no gain. Understanding financial options is just like riding a bike difficult at first , you might fall, hurt yourself but then once things fall into place you would enjoy the freedom

    Happy Journey

  15. hi Rajnish/Anil ji/ Hemant, et al,
    A very happy Deepawali and new-year to all readers of tflguide.com.

    There are a few things that I THINK you should do first before you EVEN THINK about investing:
    1) I assume you are not married yet, being only 21, and also probably living with your parents. So in effect You do not have much liabilities (assumption) right now. probably your parent(s) are also earning and are not retired.

    2) First take a family floater medical insurance of 3-5 lakhs, that covers you and your parents. Also go for a term insurance of 15-25 lakhs. The actual figure will depend on your and your parents’ medical profile and if you already have such a risk cover.

    3) Do keep 50-75 thousand as liquid in cash/savings bank account for emergencies. You may opt for the Sweeping accounts offered by some banks that give you higher returns (equivalent to short-term FDs) on any amount higher than the prescribed limit.

    4) If you plan to get married in 2-3 years then you can first start a RD in any of the good banks or in the bank where your salary is credited. You will get better interest income on an RD opened today as RI may start decreasing its key rates soon. By this amount you will be able to share the burden of your marriage with you parents. Do NOT start investing in any kind of equities for such a short-period.

    5) If you plan to get married after 4-5 years than invest 50% of surplus in Det MF or bank RD and the balance amount in diversified large-cap MF schemes via SIP route. The debt/Rd part will give you stability and the equity part will give you growth.

    Hope that you find these suggestions helpful.
    once again happy Deepawali and new-year.

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