BackIf time horizon is short, invest in a liquid asset class
Saving in cash is not recommended.
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I am salaried and have a monthly net saving of 90,000 after paying equated monthly instalments, credit card bills and household expenditure. I have a 10-year-old daughter and my wife does not earn. I have shares worth around 40 lakh but these are employee stock options (ESOPs). I have limited insurance and the balance in my savings bank account is around 1 lakh. I invest 4,000 in ICICI Discovery and IDFC Premier through systematic investment plans (SIPs). I want to save for my daughter’s education and marriage and my retirement. I would like to save 50,000 per month in cash. How much do you think I should invest and where? I plan to construct a house in the next one year.
—M. Agarwal
Your current and future savings potential will be sufficient to ensure that your savings will be able to meet your financial needs. However you have to make sure savings are done regularly as well as are increased every year. The rationale is to increase the same along with the inflation rate.
The area of concern is that all your existing savings of 40 lakh are in ESOPs, which means investment in stock of only one company. You need to ensure that wealth is distributed across asset classes and even with high risk appetite; all holdings in ESOP of existing employer may not be most prudent. At the same time, you are in the best position to understand the risks involved in holding the shares.
Both funds that you invest in are mid-caps with good track record. Along with the said funds, you can also start investment in large-cap funds wherein ICICI Prudential Focused Bluechip and Franklin India Bluechip are good options. Another category is multi-cap wherein Reliance Equity Opportunity and Templeton India Growth are recommended. You can also consider hybrid equity category which has minimum 65% equity and the balance is invested in debt securities. This will also lend stability to your portfolio. Funds which can be considered in this category are Reliance Regular Savings and HDFC Balanced. Funds which are more of asset allocators in the said category are ICICI Prudential Equity-VAP and FT India Dynamic PE Ratio FOF. Saving in cash is not recommended.
If you also plan to construct the house in a year’s time, then based on your need, savings should to be done accordingly and your savings for the next one year need to be done in a liquid and a safe asset class. You may consider starting a SIP in a liquid or an ultra-short term fund. And in case you plan to use part of your existing corpus, that is ESOP, then savings can be done accordingly.
As you have limited insurance, you need to ensure you are adequately protected and have enough life and health insurance.
Queries and views at mintmoney@livemint.com
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