Out of the investments you already have, NPS and EPF, and PPF are great options to take care of your retirement or other long term goals.
NS. I am a PSU employee whose salary is ₹29,000 per month, I save around 60% of the salary. PSU deducts for NPS and EPF. I have bought three life insurance plans out of which two are endowments and one is a whole life plan with a sum insured of ₹3 lakh. I have opened a PPF account and contribute around ₹1,500 every month. I have started three SIPs with a total of ₹3,000 with two equity and one debt fund. I have an emergency fund in a bank FD to cover expenses for 8 months. What are the next steps in my investment journey?
a. Congratulations for managing to save such a huge chunk of your income and taking some right steps so far. Out of the investments you already have, NPS and EPF, and PPF are great options to take care of your retirement or other long term goals. An emergency fund equal to 8 months’ expenses is also sufficient at this time. While we do not know the identity of your equity and debt funds, as a first time investor, we hope that you have invested in index funds or flexicap equity funds with a good track record. On the debt fund side, it would be best to stick with short duration funds that invest in high quality debt instruments at the moment. Use the services of a qualified financial advisor if you need help choosing the right fund.
We have quirks only with the insurance plans of your choice. While you will need life insurance if your family members are dependents (they will get a lump sum amount to cover loss of income in case of your death), the cheapest and best option to buy adequate life insurance is to buy a pure term policy . Endowment and whole life plans usually charge you very high premiums for very little cover and make poor investments due to lower returns than FDs. If you have dependents (you don’t need insurance if you don’t need insurance), your current life insurance cover of ₹3 lakh is quite inadequate considering your level of income.
We suggest you use an online calculator and buy a pure term policy online to work out the right life insurance amount for you. You can discontinue your high cost endowment and whole life plans and redeploy the money in term cover or other investments. As the next step in your investment journey, you should determine your financial goals and the horizons by which you want to achieve them. To know about it, see the URL / Scan the QR code along with it. As your career graph and income increase, try and push investments.
Try to achieve a 5% increase in your surplus every year to beat inflation in the long run. Although you may have insurance cover from your employer, get another standalone plan that can see you through job change times.
NS. My daughter (24) works in the private sector and earns ₹25,000 per month. Please advise how much he should save every month and where should he invest to get ₹7 lakhs in three years. She is saving ₹1,000 every month in PPF. Till now he has saved ₹70,000. Where can she invest this lump sum amount?
a. At the beginning of his career, he should aim to save around 15% of his salary and try to increase it to 20-25% as his income increases. However, with the high level of savings, it will be very difficult for him to reach ₹7 lakh in three years. Monthly investment of ₹10,000 (40% of his salary) for three years, if it earns 6.5% annual return, can fetch him around ₹4 lakh at the end of 3 years.
While higher return-earning investments (such as equity mutual funds or stocks) may drive him to a higher amount, if he is lucky enough, it would be unwise for him to invest in riskier instruments such as equities or stocks with only three years . Horizon. Indian stock markets today are trading at very high valuations and if there should be a correction or a crash, the three-year period will not give enough time for him to recover his invested principal. To reach specific goals, it would be good if she takes the time to prepare a comprehensive financial plan as mentioned earlier. (See URL / Scan QR code along with.) As mentioned in the article, it would be good if he sets aside an emergency fund for 9-12 months of expenses before he starts investing. A savings of ₹70,000 can help with this. She can deposit it in an FD with a systemically important bank.
NS. I am 21 years old and want to invest ₹10,000 every month to buy a house for the next five years. Which MF plan should I choose?
a. Since you will need to fund the bulk of the cost of the house with a home loan, we hope you want to save only for the down payment. If you are looking to buy a house in five years, you should stay in mutual funds, which invest in debt instruments to fund your down-payment amount. Funds that invest mostly in equities or have a large equity component are not a good option if you plan to withdraw in five years. With stock market valuations at record highs, there is a high risk of a market correction reducing the value of any equity investments made now. If such a correction takes place, it may take more than five years to recover your capital and earn good returns on top of it.
To save money for a down payment, you can consider short-duration/floating rate or target maturity debt funds that invest in both PSU bonds and state government debt. Investing ₹10,000 per month in a fund earning around 6.5% per annum can fetch you ₹7.1 lakh at the end of five years.
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