I am 30 years of age, working in a private company. I have been investing in equities (direct and mutual funds) as well as fixed deposits for the past five years. My current investments are as under: Direct equity (Rs 2 lakh at current market value), tax-saving FDs (Rs 1 lakh), pension plan (Rs 25,000 a year since last year) and equity-diversified MFs (Rs 2.5 lakh). I have Rs 1.5 lakh in my account. My monthly income is Rs 55,000, of which expenses amount to Rs 20,000. I want to buy a Rs 30-lakh house in another five years. I would also like to build a retirement corpus of Rs 1.5 crore (over 20 years). I invest Rs 5,000 monthly via systematic investment plans (SIPs). I plan to increase the same to Rs 10,000. By increasing my investment in MFs, will I be able to achieve my goal of purchasing the house? How should I plan my investments for building my retirement corpus?
The first step towards creating a proper financial strategy is to protect your wealth. You need to create a contingency fund, around three times your mandatory monthly expenses. Following this, individual health insurance cover should be obtained to cover any illnesses. Life insurance cover through a term plan should also be taken.
Once the wealth protection strategy is in place, the focus should shift to accumulating wealth to meet your goals. The inflated cost of the house you want to purchase after five years will be nearly Rs 42-45 lakh. Since your goal of buying a house is five years away, money should be invested in hybrid funds. To achieve this goal, you need to save around Rs 50,000-55,000. You can also consider liquidating some of your assets. For the balance, opt for finance from housing finance companies. Further, you require a corpus of Rs 1.5 crore for your retirement. Since this goal is 20 years away, investments for the same can be made in equity-oriented instruments. Saving Rs 12,000-15,000 in equity mutual funds will help you reach this goal.
I have an investible surplus of Rs 25,000 every month. I want to invest this for my daughter’s higher education, which is 10 years away. Should I consider a unit-linked insurance plan for children or a fixed deposit?
Equity as an asset class should be chosen for long-term goals (seven years and more). Debt should be chosen for short term goals (two-three years away). For the interim period, a combination of both the asset classes should be selected. Since your child’s higher education requirement is 10 years away, investments should be made in equity as an asset class. Various vehicles like mutual funds and direct equity investments can be chosen to invest in the space. Fixed deposits, by nature, are debt instruments and, therefore, should be chosen for a shorter time horizon. Also, the interest income earned is taxable. Ulips also provide the option of investing in equity-oriented funds. However, the expenses are very high. Therefore, these should be avoided. In your case, a prudent strategy would be investing in equity-oriented funds on a monthly basis to create a corpus for higher education.
The writer is a certified financial planner. Views expressed are his own. You can send your queries to email@example.com.