Dhirendra Kumar, CEO, Value Research, says new investors must consider three things before starting to invest – emergency fund, health insurance and life insurance. Edited excerpts from an interview with ET Now:
What would be your advice to a youngster who is now going to build a portfolio?
I would not like to give a prescription because that prescription or standard prescription may not be valid for everybody. It could be a function of your age, background, ability to absorb how things work, etc. But I would say that everybody should understand a little bit and at the same time everybody should understand the steps to it.
What would be your advice to a youngster who is now going to build a portfolio?
I would not like to give a prescription because that prescription or standard prescription may not be valid for everybody. It could be a function of your age, background, ability to absorb how things work, etc. But I would say that everybody should understand a little bit and at the same time everybody should understand the steps to it.
For example, the first step should be having an emergency fund. Do not invest till you have credit card debt. First get rid of it because no investment is going to generate return more than the cost that you are incurring on that. The only borrowing which an individual can justify in his life is home loan. Except for that, the only other loan that can be justified is if you have to borrow something in emergency. But if there is any other standard borrowing, ideally you should not invest because you are not a company.
When it comes to the building blocks or the foundation, three things come to my mind. One is to have an emergency fund. It could vary for different people. Do your own estimation and nobody else can help you with this because you know your situation best – depending on children at home or old parents and how much money should be handy.
Then comes health insurance because that can disrupt all your savings and investment plan. Then if you have financial dependence, then you must have life insurance, and that too a simple term insurance.
Have these three things in place and then you are ready for investments.
How should individuals plan their emergencies as insurance in several cases is very expensive? Would you say that they need to have a larger emergency fund?
You should have a margin of safety with your savings. You cannot do it in a very marginal way. Many expenses are unpredictable. Many of these expenses will not be covered under insurance.
So you should have as much equity as possible. Do a methodical planning and most of the planning should not be left with the experts because the biggest expertise comes from you.
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