Financial Planning: Gaurav Mashruwala

I am 26 and have a surplus of Rs 15,000 every month. I want to invest this amount over the next 20 years for securing my future goals. In short-term (next two-three years), I want to save for my marriage. I also want to save for children’s education (at least 10 years from now) and my retirement.
You have not mentioned the approximate amount of funds that you will need for each of these goals. However, since there is a long time lag between each of your goals, you will not have to take a loan to achieve them.

As a rule of thumb, for financial goals that are less than two-three years away, one must choose debt as an asset class. This is because, even though debt loses to inflation in long run, in a short period, its impact is minimal. Within debt instruments, you can choose from bank deposits, post-office savings schemes, company fixed deposits and bonds- or debt-based mutual funds. To meet your financial requirements for marriage, choose debt as an asset class. If you are in the lower income tax bracket, invest in post-office or bank recurring deposit schemes. If your income attracts a higher rate of income tax, start a systematic investment plan (SIP) in a debt-based mutual fund.

Over a long period (seven-nine years), returns from equity have mostly outperformed returns from debt-based investment instruments. Both your requirements — children’s education and retirement — are more than a decade away. Therefore, to achieve these goals, equity is an optimal asset class. You can invest in equity, either directly on the stock exchange or through an equity-oriented mutual fund. If you have both the skill and time to invest in stock market directly, choose that as an option. Alternatively, start SIP in an index fund. Start this investment once you have accumulated sufficient corpus to achieve your marriage expense.

My monthly salary is Rs 50,000 and my saving each month amounts to Rs 15,000. I want to start saving for my future financial goals. This includes education expenses for my two children (Rs 40 lakh), 15 years from now. I need to build a corpus of Rs 60 lakh for their marriages, 25 years from now. I also want to purchase a home and a car, both on loan. Finally, I want to make a retirement corpus that gives me at least Rs 50,000 each month. I plan to start investing in mutual funds via SIP. My concern is that I might not be able to accumulate the money. What are my options?
Currently, you are saving and investing about 30 per cent of your income. Most financial planners will congratulate you for healthy savings rate. You need to feel satisfied and not have undue anxieties. I have observed over the years that individuals and couples, who save more than 30-50 per cent of their inflow during the initial years of their career, go on to create substantial wealth and achieve their financial goals. This happens due to the following reasons:

1. Even a small amount saved during the initial years of career; grows into a lot over the years because of the benefits of compounding.

2. If in the initial years you are able to control your lifestyle-related expenses, then it becomes a habit. Over the years when your income level increases, you will have more surplus to invest.

Since you have over a decade left for your children’s education and marriage goals, invest systematically in an equity-based mutual fund every month. Also, about three years prior to the occurrence of a particular financial goal, transfer the corpus required for that goal from equity to debt instruments.

The writer is a certified financial planner. Send your queries to yourmoney@bsmail.in