Financial planning: Malhar Majumdar

I am 24 and have just started working. My monthly take-home salary is Rs 45,000. How much should I save every month to avoid paying taxes? Which is the safest option? I have been told post-office recurring deposit is a good one.

Your in-hand salary is Rs 45,000 a month, or Rs 5.4 lakh a year. But you haven’t furnished certain key information such as:

a) The tax deducted by your employer;
b) Other statutory deductions (the Public Provident Fund or PPF, etc);
c) Your salary break-up (basic, dearness allowance, house rent allowance).

This makes it difficult to offer a comprehensive idea on how your income be made tax-free. However, you may invest Rs 10,000 a month during a financial year (from April 2011 to March 2012) and this will give you a substantial tax benefit. Remember, investments toward this need be made only in selected products such as the Employee Provident Fund, PPF, five-year bank fixed deposits, life insurance plans, National Savings Certificate, tax-saving or equity-linked savings schemes (ELSS) of mutual funds and infrastructure bonds.

I presume ‘safety’ implies protection of invested capital. Barring ELSS, most instruments listed above offer this safety. But you may have to sacrifice growth, if you are dependent on safe avenues. As post-office recurring deposit is not eligible for income tax benefits under Section 80C of the Income Tax Act, it is not a likely option for you.

I am 42 years and earning Rs 85,000 a month. I have two children — aged 11 and six years. Our monthly expense is Rs 45,000. The equated monthly instalment for home loan is Rs 15,500. My investments are — PPF (Rs 2.5 lakh), mutual fund (Rs 50,000), life insurance (Rs 4 lakh), stocks (Rs 2 lakh) and fixed deposits (Rs 60,000). I hold cash worth Rs 5 lakh in the bank. I invest on an ad-hoc basis. What should be my retirement corpus need? How should I plan my children’s education?
To maintain your current lifestyle, you will need Rs 1.03 lakh a month — in the first month of retirement. Also, a corpus of Rs 2.55 crore would be a decent retirement kitty. This needs to be reviewed on a regular basis.

For your children’s education, you need to first determine the nature of course they would attend. Then, you need the expenses. The expenses would take care of tuition, books and living expenses. Now, we need to project the current expenses and estimate the probable cost, when actually the child goes to the college. Further, you need to calculate the funding gap of your child and suitably insure yourself against any possible contingency. Your present portfolio is achieving a return of only 6.5 per cent, which is even lesser than inflation. You are holding too much cash and your ad hoc investment decision is not helping you at all.

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