Ask Morningstar: I am 40 with no savings. How do I begin?

By Mohasin Athanikar |  05-05-22 | 

I am 40 years old. No investments. I only have a savings account. I have Rs 10,000 to invest and I can invest Rs 1,000/month. I would like to invest it in 1 or 2 mutual funds. Which ones must I go with? I will be able to invest this amount for 10 years and not touch it.

I always recommend that investors build their portfolio on a bedrock of asset allocation where money is invested in equity and debt and gold, and even real estate.

In your case, the amount available for investment is small and you are running out of time. So let me get straight to the point. I will give you some broad guidelines, but I suggest you take the help of a financial adviser as soon as possible.

Since I know nothing about your personal circumstances with respect to your goals or debt or dependents or inheritance, I will share with you some pointers.

This is what I would recommend to an investor with a reasonably long goal horizon such as a decade.

Around 20% of the portfolio can be in debt funds to provide some stability. I would recommend funds with high (safer) credit quality portfolio such as Banking & PSU debt funds, Corporate Bond funds, Short-duration funds, and Medium to long term funds.

This is the equity break-up, which will comprise 80% of the portfolio:

  • 55% into large-cap stocks
  • 10% into mid-cap stocks
  • 5% into small-cap stocks
  • 10% into international stocks

What I suggest for you.

However, given that you are investing just Rs 1,000/month, I suggest that look to invest in just two funds - a flexi-cap equity fund and a short-term debt fund to meet the recommended asset mix. You could look to add a regionally well-diversified international fund when you increase the SIP amount.

So how much will you accumulate?

You will be able to accumulate a corpus of around Rs 31 lakh at the end of your goal horizon. It might grow to Rs 55 lakh at the end of 15 years.

The calculation is based on these assumptions:

  • You stick to the recommended asset allocation
  • Invest Rs 10,000 and do a monthly SIP of Rs 1,000
  • Increase the monthly SIP amount by 10% per annum
  • Equity portfolio will return 11% per annum
  • Fixed income portfolio will return 6% per annum

Some other suggestions.

  • Start saving aggressively. Increase your savings and channelise them into your investments. Increase your SIP amounts every year. Also look to top-up your investments whenever you have any excess savings or windfall gains. If you find it difficult to save, read Why does money slip through my fingers?
  • I also would suggest that you be well insured when it comes to medical insurance. I have no ideas about your dependents, so cannot comment on life insurance. Read Why you need medical insurance.
  • I normally recommend an Emergency Fund of 6-12 months of expenses, so that no eventuality will disrupt your investing pattern. Do consider this too.
  • You can view the reports of our fund analysts here. Evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been delivering below-average performance consistently, you may switch to a more consistent one.


Articles authored by MOHASIN ATHANIKAR

Registered readers can post their queries by accessing the Ask Morningstar tab. Our team will answer SELECT queries relating to mutual funds, portfolio planning and personal finance. While we provide broad guidelines, we suggest you consult a financial adviser before making investment decisions.

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