I am 26, unmarried and earn Rs 60,000 a month. I have just started investing in mutual funds with an SIP of Rs 3,000. I pay EMI of Rs 15,000 on my education loan. I want to save taxes and grow my wealth. I will buy health and life insurance this year. How should I invest?
Adhil Shetty, CEO, BankBazaar, replies: First, set your financial goals for the near-term, short term and long-term. For instance, one of your goals could be to close your education loan early. To do this, you need to come up with a plan that tells you how much you need to put aside every month towards this goal. Second, try to increase your monthly investments. Ideally, try to save at least 30-40% of your salary. That would come to Rs 18,000-24,000 per month. A part of this could be used to close your education loan early. Third, spread your investments across instruments. Park some money in ELSS funds, some in balanced funds, and some in fixed instruments such as NSC, PPF and EPF. You may even want to boost your monthly EPF contribution. Create an emergency fund equal to 6-12 months’ salary as a cushion against any financial emergencies.
I am 24. My gross salary per month is around Rs 40,000. I wish to create a corpus of around Rs 2 crore for my retirement at the age of 50. Please advise me about the best possible ways to achieve this goal.
Prableen Bajpai, Founder FinFix® Research & Analytics, replies
: First build a contingency fund equivalent to 12 months of monthly expenses. You can build this contingency amount by regularly setting aside some money in a recurring deposit or a liquid fund. For your long-term goal, divide your monthly investments into two broader instruments – employee provident fund (EPF) and mutual funds. A contribution to EPF will bring stability to your portfolio. The contribution can be used for your tax saving and is tax-free at withdrawal. Regarding the mutual funds, start with an index fund and a flexi-cap fund to build your core portfolio. Simultaneously, do set a small sum in a debt fund for near-term expenses such as rental deposit, holidays or buying a vehicle. This will ensure that your long-term investments remain undisturbed. Going forward, as your salary increases, you can add a tax saving mutual fund (based on need) and an international fund. Overall, the current target can be reached with a Rs 5,000 SIP per month in an equity mutual fund and increasing it by 10% annually. This way, your first-year investment will be Rs 60,000, followed by Rs 66,000 (Rs 5,500/month) the next year, then 72,000 (Rs 6,000/month) and so on. With time and accrual of new responsibilities, make sure to review your goals and plan accordingly. Lastly, do get a term plan and a health cover.