Is there a correct sequence of investing that a person should follow? Or rather is there a correct sequence of financial assets that a person should buy?

I do think there is.

Assume a boy/girl is from a rich family, there is a good chance that he already may have a savings bank account, maybe a PPF, a sip in some mutual fund at the least. Even for others a savings bank account is very likely – even for not so prosperous parents.

Assuming a student who comes from a middle class family whose parents have spent about Rs. 25L on his education. I am including school fees, tuition, tennis lessons, …all costs included right up to his MBA or MBBS. Frankly it does not matte whether it is 25L or 200L, it is just a figure to have in mind.

Assuming that this 24 year old kid has just got his first job, what is the first thing that he should buy?

1. Term insurance: No parent would like to use the money from a client’s term insurance. Ask me. I know one father who flogged himself for his son’s death. He hated touching the money received from the insurance claim of his son’s death. However, if you know that your father has taken a loan/ drawn from his provident fund to educate you, go and take Rs. 50L (2x what your dad spent on your education) with your parents as a nominee. This is the least that you can do for your parents. Remember the money has come from his PF which would have been richer by Rs. 50L if he had not withdrawn Rs. 25L for your education. THIS IS CLEARLY THE MUST BUY first kinda product.

2. Medical Insurance for you AND your parents: Find out how much of medical insurance your parents have. People who have retired from high ranks in the government, psu, etc. have medical cover for life. However people who have retired from small Mom and Shop businesses will need a medical cover. Find a good agent and then buy adequate medical insurance.

3. Start an SIP in an ELSS fund: Just pick a big well managed ELSS – maybe a large and mid cap fund – and sign up for a SIP in the growth option. The maximum of course you should sign up is Rs. 12500 per month, but you can decide on that figure depending on your provident fund, ppf (assuming you had one even earlier), term insurance premium, etc. Start a sip in a ‘Short term bond fund’ for Rs. 3000 a month and keep it going for 3 years. This bond fund with Rs. 100,000 becomes your emergency fund. I am not a big fan of emergency fund – but your rent, emi, etc. should NEVER EVER be delayed. Don’t risk the fraud of the decade – the CREDIT RATING SCORE.

4. Just as important it is to know what you should buy, LEARN to stay away from endowment insurance – unit linked or its worse cousin the classic one.

5. It is NOT at all necessary to start a PPF account. However, if you MUST, open it with a bank with good technology – you do not need to go to a Post office to open a PPF account.

6. Pay off all credit card debt, IF ANY. No other investment can ever give you 42% pa returns!! and that is the kinda interest you pay on credit card debt. So just pay off all the debt. Pronto.

7. Find yourself a good financial adviser – slightly older than you at the least. Not too old if you think there is a generation mismatch. If you think your parents adviser will work for you, go ahead.

This is a real cookie cut answer for 90% of the audience. When I say “I am not a big fan of emergency funds” I mean for a young boy who can call on his parents in case there is an emergency. However if you are a single parent with 2 kids and no family support, you will need a big emergency fund. If you are supporting your parents and a sibling in college, you will need a bigger term insurance. If you have married against your parents wishes you will need 2 term insurance plans – one with your parents as a nominee and one with your wife as a nominee….

So obviously for different people the answer could be different. Don’t just cut and paste this, adapt and use this.

No, you do not have to ask my permission to share this with your friends, colleagues, children…..it would be my pleasure.