I am 27 years old and earn Rs 1 lakh per month. I have been investing Rs 5,000 per month in HDFC Top 200 and DSP Top 100 for over a year and want to start investing in funds specializing in banking and infrastructure sectors. I have a life cover for Rs 20 lakh and a health insurance policy for Rs 5 lakh. I also invest Rs 70,000 in Public Provident Fund (PPF) per year. I want to invest in a debt instrument or a pension fund. Please advise.
The two funds you have are very good, the only blemish being that they are from the same category—large-cap. But for these funds the same can be excused. About you wanting exposure in banking and infrastructure sectors, it is prudent to let the fund manager decide and hence consider the diversified category. HDFC Equity, UTI Equity and Canara Robeco Equity Diversified are good options. You need to increase your life cover as currently your housing loan covers your entire sum assured. In case you don’t have any dependants, plan to increase the same once you get married. Go for term insurance. Your health insurance cover is adequate. In addition to PPF, you can consider investing in dynamic debt funds and short-term funds. Templeton India Short Term Income Fund and Birla Sunlife Dynamic Bond Fund are recommended.
I retired a year ago. Assuming that a couple needs about Rs 25,000 per month, liabilities being settled, and an expected life span of 25 years, I have the following investment strategy: PPF (10%), Senior Citizen’s Savings Scheme (10%), fixed deposits (20%), fixed maturity plans or FMPs (20%), monthly income scheme (10%), equity and equity mutual funds (30%). There is no tax liability at this level. Is this strategy okay? If one has more than Rs 25 lakh, what should be the strategy ?
Firstly let me give you the credit of doing what many people at your age will not be able to do. I will propose a few changes, however. Firstly, you cannot contribute more than Rs 70, 000 per annum in PPF; a couple can contribute Rs 1.40 lakh. This will translate to around 5.6% of the portfolio. At the same time, we also don’t want too much exposure in this asset as besides the long lock-in, there is no regular flow of income.
Since there is no tax liability, there is no need to go for an FMP. A fixed deposit is better as it gives an additional advantage of liquidity, which is a bit of challenge in FMPs. Further, it is better to stay with equity mutual funds and not consider direct equities unless you really want to invest directly. If that is the case, it is advisable you limit the amount to 10% of the portfolio. Also you need to make sure your health insurance is in order and you pay the premiums on time. In case the corpus capital is more or less than what you have mentioned, the asset allocation should remain the same.
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
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