Save, Invest or pay off debt?
This is perhaps the most often asked question. I have seen people mess up quite dramatically. One HR consultant once called me and said “I have Rs. 52,000 where can I invest?’. So I got of on the pedal saying “Equity is good for the long term….etc”. Then when there was a blank from the other side, I thought let me make it simpler.
I asked her how much has she paid on the credit card…she said Rs. 1600. Then I found that she was paying ONLY 5% OF THE AMOUNT OWNED – because that FIGURE was in BIG, BLACK AND BOLD! Then she paid off Rs. 32,000.
This of course is an extreme case, but there are many howlers. One girl about to join for her MBA was doing an SIP in an equity fund. Now when she needed money, she found her NAV at 50% of her investments. Both aggression and pessimissum can be bad for a portfolio. If you know exactly when you need the money you are normally better off in a debt instrument if the period is less than 3 years. Only if you have a vague idea – and say the period is 10+ years away should you think of an equity fund.
If you have a personal loan (or worse credit card debt @ 51% p.a. from the bank which does not let people sleep), a car loan, etc. I am not sure that you should be investing at all! Partially yes perhaps, but normally investing makes sense only when you have just a home mortgage. Most other loans are likely to be expensive and tax unfriendly.
So it is really very difficult to give one short answer. It really depends on case to case. For a 23 year old girl who wants to do her MBA 2 years hence, and fund her marriage expenses (at least partially)….bank recurring deposit or A MIP (with 20% in equity) is not a bad option at all. STAY AWAY FROM EQUITIES!
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