Where to invest additional money every month?
If you can increase the amount of monthly investments, where should you invest next?
If you can increase the amount of monthly investments, where should you invest next?
Once an investor has been investing for some time, there will come a time when their income will increase, and they will have an additional monthly amount they can invest. Alternatively, if you are investing ā¹50,000/month, you could wonder where people who have ā¹ two lakhs or ā¹ five lakhs a month invest. This post deals with both situations.
We have already discussed where to invest spare money available one time here: I have ā¹ five lakhs in the bank. What do I do now to get the best returns?. This post deals with the general case where you have more money to invest monthly.
Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.Many investors in this situation start with the question, which is a variation of āWhich fund should I choose now?ā. But, instead, the investor is recommended to go back to the basics and check if they are investing as per their goals.
If goals are not set, please do so now by following this process step by step: I have just started earning and do not know a lot of finance. What now?
Once you have goals that are set, follow these steps:
The planner will give two outputs:
Once you have the SIP amounts, you can choose equity and debt funds from here: Which funds should I invest in?
Suppose you already have existing funds where you are investing. In that case, you should evaluate how each fund is doing based on this framework: Are you checking the performance of your funds regularly?.
If you are happy with your funds, invest the extra monthly amount in the same funds as per the SIP amounts specified by the planner. However, if you switch to new funds, start the SIPs in the new funds and stop SIPs in the old funds.
A few things to keep in mind:
Based on this discussion, our recommendation will be to stick to the same funds irrespective of how much the investment amount increases with time: going from ā¹20,000 to ā¹2 lakhs/month does not require different investments. You can create a very simple portfolio with not more than 2-3 funds that is easy to track and manage without losing out anything that can be got just with 10-12 funds or more. As we have discussed before, asset allocation and rebalancing as per goals is more important in portfolio construction than looking for the best fund to invest: What should be the Asset Allocation for your goals?
An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor, and the consequences of being classified as such, vary between countries. - Wikipedia
In India, SEBI norms released in August 2021 say that you can be an accredited investor if your net worth is ā¹7.5cr or more or have an annual income of ā¹2cr or more. More details are available here.
The financial regulator in each country restricts which investor can invest in what securities. For example, to invest in PMS schemes, you need to invest at least ā¹ 50 lakhs. The rationale here is that with increasing ticket size, comes an increasing appreciation of risk associated with such investments.
Investors aspiring to reach accredited status should clearly understand the balance of the potential of getting higher returns vs the higher risk in alternative investments. One quick way of ascertaining the suitability of such assets is to check if the investment managerās interest is aligned with that of the investor. A typical 2/20 fee structure (annual 2% of AuM and 20% profits) leaves the entire downside for the investor since the AuM fee is paid out irrespective of fund performance. Before investing, the investor should check if the advertised returns, post fees, beat a humble Nifty index fund. Having more money to invest does not necessarily lead to becoming a sophisticated investor. It also increases the risk of making bigger mistakes.
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This post titled Where to invest additional money every month? first appeared on 13 Dec 2021 at https://arthgyaan.com