Ask Us: On investments
Investing in mutual fund SIPs does not mean you are putting all eggs in one basket as long as you are investing in a good mix of equity and debt funds.
Q. I am a 39-year-old single mother with a 14-year-old daughter. I am employed with a leading NBFC. My monthly gross earnings come to ₹72,000 and net take home is ₹51,000 (after deduction of VPF of ₹10,000 over and above my regular deductions). I have nil liabilities. I used to invest ₹17,000 per month (now stopped as I didn’t want to put all eggs in one basket) in various SIPs, a monthly LIC premium of ₹6,000 (continuing), ₹5,000 monthly for NPS and ₹10,000 as monthly RD for 12 months. Kindly advise as to how I can further build my wealth. Do I need to restart my SIPs or continue with my savings habit?
Jayalakshmi
A. Your VPF, recurring deposit and NPS alone make up ₹25,000 per month of savings and investment. We are not counting your LIC premium as investment unless you are invested in any market-linked plans there. Your current savings ae commendable. Please keep it up!
Investing in mutual fund SIPs does not mean you are putting all eggs in one basket as long as you are investing in a good mix of equity and debt funds. Without equity, even the best of savings and investment habits may not fetch you inflation-beating returns in the long term. You will have some equities through your NPS but that is unlikely to be sufficient. Yes, a wrong mutual fund product that is mis-sold can lead to trouble. To avoid this, ask for simple Nifty, Nifty 500 and Nifty Next 50 index equity funds. These are low-commission products and few will offer you the option unless you ask.
These will reduce the need to maintain your portfolio as they are passive funds, mimicking the market. With this, mix some simple ultra-short, short-duration and banking and PSU funds and restart your SIP. Do not worry if the market falls, as long as you are investing for a minimum of 7 years. For any short-term goals, use safe avenues such as bank deposits.
Q. I am 26 years old; I work in a private IT firm. My net monthly income is ₹57,000 and I have investments of ₹6,200 per month as LIC premium and spend ₹8,000 per month on room rent. But still, tax is getting deducted from my salary. Could you please recommend some long-term investment plans that could save me from paying tax in future and which I could start on soon?
Aditya Rai
A.The easiest you can do is to ask your employer to deduct a higher provident fund — called voluntary provident fund. This will provide you with a higher tax deduction since it is unlikely your current PF is large enough to get full deduction under Section 80C of the Income Tax Act. Other than this, you can consider opening a PPF account. If you are a risk taker, tax-saving funds (ELSS) also work.
Q. I recently retired from a manager’s post at a government undertaking; I received about ₹1 crore as superannuation benefits. Now, I have about ₹2 crore, including my life-long savings . About 90% of the amount has been deposited in multiple banks as fixed deposits. Kindly guide me on investing the sum to get better returns on investments to beat inflation.
Tariq Khan
A. Our first suggestion to manage your corpus is to go for a fee-based financial planner and do a cash flow to ensure that the corpus lasts through your retired years. Avoid using agents and distributors for this purpose. If not, considering the following: keep an emergency corpus that is 3-6 months of your expenses in large public or private banks that are systemically important. This would be SBI, ICICI Bank and HDFC Bank.
For regular income, invest up to ₹15 lakh in the Senior Citizens’ scheme if you have turned 60. If you are less than 60, then you will have to stick to FDs and RBI Floating Rate Bonds we have mentioned further down.
Similarly at 60, use LIC’s Pradhan Mantri Vaya Vandhana Yojana — a safe pension plan. This also has a limit of ₹15 lakh. Post these two, consider RBI’s Floating Rate Savings Bond, available with select large banks, including SBI, and select brokerages. This has no limit and is sovereign guaranteed. Interest is floating but will always be 35 basis points above the NSC rate.
Stick to fixed deposits across large private and public sector banks and perhaps use a couple of small finance banks for FDs (for slightly higher interest) up to ₹5 lakh each. ₹5 lakh is the amount up to which there will be insurance cover for your bank FD. Avoid going to risky banks beyond this amount.
Q. I am due for retirement from government service in a few months. I would be getting a significant amount at the time of retirement. I have a home loan worth a few tens of lakhs. Is it wise to pay back the home loan? What are the best options for investments?
Suresh
A. It is best to start your retired life without any liabilities. To this extent, if you have a large corpus and you will also earn a pension, you must consider closing your loan, even if it fetches you tax benefits. On investments, you can go for a mix of Senior Citizens’ Savings Scheme, RBI Floating Rate Savings Bond, LIC’s Vaya Vandhana Yojana and some 10-15% in equity index mutual funds. Add the equity index funds only if you do not need this part of your corpus for the next 5-10 years.
(The adviser is Co-founder, Primeinvestor.in)
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