These three representative couples have different investment needs, different age groups and different risk profiles. But they have one thing in common – need to invest their savings wisely to achieve the desired goals. While long-term investment instruments will prove good for Rahul and Priya, Kapoors should look for medium-term options. Rajan Gupta, who is approaching retirement, has little time in hand. Income schemes will, therefore, work best for him.

The common route
Equity and debt markets offer investment opportunities for these three households — and most of us. Investment strategy for any individual changes according to various factors. These are his risk profile (aggressive, moderate, conservative, very conservative), his income tax slab (zero tax-bracket, low tax bracket or high tax bracket), his age (young, middle-aged, pre-retirement, retired) and financial goals (children’s education, their marriage, retirement planning, housing, or other such goals).

Equity & debt funds
Worldwide, equity markets attract a lot of attention. They are the subject of news articles, rumours, cocktail talk, and are generally associated with exciting adventurous people. No one talks about debt. It is associated with serious, risk-averse people. However, you will be surprised to know that the debt market is several times bigger than the equity market. And this is true for almost all the countries. The debt market is so big that most of the times it is beyond the reach of ordinary investors. Institutional investors are the major players in the market. Fixed deposits of companies are the biggest avenue for retail investors. In most cases, debt market is a market of compulsion while equity market is a market of choice. Many institutional investors have no choice but to invest in specific debt instruments by virtue of their constitution or due to the regulations which govern their functioning. The institutional investors operating in the Indian debt market can be categorised as banks, insurance companies, provident funds, mutual funds, trusts, and corporate treasuries. While banks, corporate treasuries, and mutual funds can also invest in equities, provident funds, insurance companies and trusts almost exclusively invest in various debt instruments.

Last year when the stockmarket was soaring, small investors seemed eager to take advantage of the crest. Most of the savvy investors put their money in equity-based mutual funds

Ups and downs
During the past year when the stockmarket was soaring, small investors seemed eager to take advantage of the crest. Most of the savvy investors put their money in equity-based mutual funds. (Smart investors, who do not have the time and expertise, choose mutual funds to invest in equities, and leave it to fund managers to pick and choose the right equities.) However, since April 2000, the rate of investment in equity-based funds has slowed down a bit. One reason for this could be the U-turn taken by the market. Now, when the markets are volatile, it is the right time to balance your portfolio. Mutual funds are the best option for investors: it diversifies their portfolio, and also benefits from the upside of the equity market, says experts. For an individual investor, putting money in equities is risky. The stock markets have been fluctuating like a roller-coaster. Even expert stock market brokers were changing their recommendations everyday — oscillating between selling and buying. However, equities are still seen as the best performing investment option for long-term investment. So, if you can survive the current volatility, there will be rich benefits for you to reap later. Debts, on the other hand, are as safe as always. It is particularly the right time to shift to the debt instruments. These are low-risk and provide fixed income. However, these advantages of the debt market were dampened a bit with the one per cent cut in the PPF rate from 12 per cent to 11 per cent from January, 2000. This has led to interest reduction in other instruments as well.This means a lower interest on fixed deposit investments. But some experts feel that in all likelihood, interest rates will go up again, what with the ebbing of foreign direct and portfolio investment inflows! Even if the volatility of stockmarket continues, investing in long-term debt instruments is not

Your Profile
The investor’ profile is a very significant factor while designing the investment portfolio. By profile, it is meant whether the investor is aggressive, moderate, conservative or very conservative. As the terms suggest, these point at the risk-taking approach of the investor. The risk-profile is generally dependent upon your philosophy though age and investment goals of the investor also play a crucial role in calculating his risk-taking capacity. Young investors are generally aggressive in their approach as they have the advantage of time on their side and normally have long-term goals, like children’s higher education, a house etc. On the other hand, people nearing retirement age are advised to adopt a risk-averse approach since they do not have time to wait for the market trends to change, in case there is a downslide. Moreover, the time to fulfill their goals is also round the corner.
How to check your risk-taking capacity? It is very difficult to categorise yourself as an aggressive or conservative investor. There are so many factors governing this aspect. Bajaj Capital Investor's India has prepared a questionnaire to help you judge what kind of investor you are (See: Judge Yourself). Answer the queries to see what kind of an investor you are and invest accordingly. Actually, there are no hard lines, but you are more satisfied if your philosophy matches those of your instruments. Moreover, you are likely to achieve desired returns as and when you want if you plan your investment diligently.
If you are an aggressive investor, you can put 50% of your investment in equity market and 40 per cent in the debt market. The remaining 10% can be kept in liquid funds and saving accounts.
If you judge yourself to be a moderate investor, your share in debt market can increase and go up to 60% of your investible amount. You should limit your investment is equity to 30% and put the remaining 10% in cash.
A conservative investor will further increase his investment in the debt market — to about 70%. The 10% savings in cash are almost compulsory at this stage. You can foray into the equity market with 20% share of investibles.
But if you are a very conservative investor, you will find the up-today-down-tomorrow trends of equity market too hot to handle. However, it is suggested that you should put at least 10% in equity market as the capital appreciation here is very good. The safety of debt market attracts you more and you can put about 80% of your investibles in debt instruments. Do not forget to keep aside 10% for liquid funds/savings account.

Judge yourself
1. Answer the following questions to determine what type of an investor you are. (a) Safety of my principal (b) Earning returns above the inflation rate (c) Earning high returns. 2. My current portfolio includes majority of : (a) Govt. Securities and Bonds, (b) Mutual Funds and company FDs (c) Equity Shares 3. I would like my investment to grow : (a) Steadily (b) At average rate (c) Fast 4. How long have you have investing :	(a) For last 1-5 years (b) For last 5-10 years (c) For over 10 years and above. 5. How much percentage of your income do you invest? (a) Upto 5% (b) 5% - 10% (c) More than 10% 6. My knowledge about various investment schemes is: (a) Nil (b) Average (c) Good Evaluate yourself : Give 10 points for every ‘a’, 20 points for ‘b’ and 30 points for ‘c’. Results 60-80 : Very conservative investor 81-120 : Conservative Investor 121-150 : Moderate Investor 151-180 : Aggressive Investor
Asset Allocation
Aggressive Investor	Moderate Investor
Conservative Investor	Very Conservative Investor

Your Age
Age is another deciding factor when choosing the right instrument for your investment. As a young investor, your goals are long-term, your income is growing, and you have less (or no) responsibility of children. A young investor with moderate risk-taking capabilities should take cover in the safety of debt instruments, putting about 60% of your investible in the debt market. But his share in equities can also go up to 30%., leaving 10% to be kept in cash accounts. Among the equity instruments, he should invest 50% in diversified funds and 25% each in sectoral and balanced funds. His debt portfolio may comprise company FDs, (50%), Debt Funds (25%) and bonds (25%). Let us see what should be the driving factors behind the choice of instru-ments for investors of varying age groups.

20-somethings. Your ability to take risks is at its highest. Therefore, equity could dominate your portfolio. But if you have an investible amount of less than Rs 10,000, you can do very little with it. Equity funds are the best options for you. Also, you can keep your exposure to debt very low.

30-somethings. You are now married and have children. This means fewer risks. But that does not mean you have to turn your face off equity market. It should still make 50% of your portfolio. In fact, this is the right time to invest in some good diversified funds after complete homework. The child’s expenses increase with time. If you have also a loan for car or house, look for fixed income instruments in the debt market, that give regular steady income. Do not think your savings are too less. Start investing and at least make a beginning.

40-somethings. At this age, your children are almost ready for higher education. We suggest you to be risk-averse now. This is also the time to start planning for your retirement. Avoid large direct exposure to equity but there is no harm in one-off buys in sunrise sector. Debt market should be dominating your portfolio now. Widen your debt portfolio by adding tax-efficient instruments. Look for liquidity benefit while investing. Ideally, the debt-equity ratio at this stage should be 3:1.
50-somethings. You must be planning for your children’s weddings now. And for your retirement. With huge expenses coming your way, your investment in equity should be cut down. Since liquidity is the prime concern of your investment now, venture out in debt market more.