LIC or Mutual Fund? The First Time Investor

Long time ago, when stock market was considered only for gamblers, there was one piece of advice that echoed in every Indian home – Take an LIC policy. Why? Because we strongly believed that we would never die, and that the ‘money back’ option in LIC beat any FD calculator.

Now things have changed – we know that investment is not just LIC policy, but more about asset allocation .

So let’s start with basics

LIC policies are never good investment vehicles because they mix insurance and investment, so you get neither of the benefits. Same is the case with ULIP and other products. For someone who is starting investing (assumption from that statement of no savings) here is a vanilla offering that I can think of

1. Invest in PPF – One of the safest bets – having about ₹ 50k per year in this, and try to see if you can reach the max of ₹1.5L per year. One of the safest long term debt bet apart from Sukanya Samrudhi Scheme. {4k per month}. PPF is best when you invest in April in a lumpsum so you get the max interest benefit.
2. Invest in Emerging funds schemes or large cap schemes – put in at least a ₹5k to ₹10k per month in these schemes as SIP. Don’t take more than 3 Mutual funds.
3. Have ETFs – any Nifty ETF would for ₹5k per month
4. If you are in a private company, please take a health insurance. Private companies, as COVID19, and in the past 9/11, 2009 recession have proven, can terminate employment at will. I would suggest at least taking super top health insurance schemes from 3 L to 15 L, cause most of us today can pay the first 3L from credit cards or own savings or corporate insurance.
5. If not taken, please take a term life insurance of at least 1.5 cr to 2cr. Term insurance, no fancy additions.
6. If you don’t have ancestral properties or parental properties to inherit, you can plan to acquire a property. Remember, this advice is for living in a property and not for capital appreciation. Also, note that in a metro/city/place you work having a flat is better than having a property in one’s ‘gaon’ where you have no control over the property. Buying a property needs long term commitment to that city. Don’t buy a flat on home loan only to fill Section 80C in your tax returns.

Points 1,4,5, & 6 offer tax benefits.

Assuming a take home of ₹50k per month, you are now investing ₹19k per month via 1,2,3.

If you alone, try to rent out a cheaper apartment. If with family, newly married, try staying closer to office to save fuel and travel costs.

You can start with these basics, and later expand into more assets.

I would not advise without detailed risk profiling

1. Money back Insurance policies
2. NPS: why? cause it is not flexible – you can’t claim the entire amount – and there are rules surrounding the re-investment in annuity funds post retirement.
3. Gold Funds (they seem great now, but they may find a place once you start more savings)

Asset allocation is more than just about mutual funds – there is gold, real estate, bonds, but to start – a simple SIP and PPF is the best

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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