Ask Mint Money | Earning family member who has dependants should buy life cover

I am 27 years old and married. At present, I save Rs 15,000 per month and have a corpus of Rs 3 lakh. I don’t have any insurance plan or any other investment. Other members of my family include my mother and father aged 52 and 59, respectively. Should I buy a term plan for my mother? Where should I invest for my retirement. How should I start?

—Abhishek Gulati

You have not mentioned your asset allocation and the instruments in which your existing savings are parked. You need to determine your risk appetite and capacity as well as your horizon of investments. Based on the same, you should consider taking some risk in your portfolio. Your monthly savings should consist of regular investments via systematic investment plans in equity mutual funds as well as hybrid funds.

Within the equity space, consider categories such as diversified and large-cap, where Reliance Equity Opportunity, UTI Opportunity, ICICI Prudential Focused Blue Chip are good options. Also, consider balanced funds, which we believe is an under-utilized category. Here you can get the exposure of debt with the taxation of equity. In this category, HDFC Balanced and HDFC Prudence have been consistent performers. In case you want to take lower exposure to risk, you may consider allocation to monthly income plans (MIPs). These plans take equity exposure of 20-30% and the remaining 70-80% is invested in debt instruments. The name may appear a misnomer as the endeavour is to provide regular income. However, you can use this as an investment vehicle, which gives your portfolio a growth kicker by taking moderate risk. Reliance MIP and HDFC MIP can be considered in this category.

As far as insurance for your mother is concerned, it is not very clear whether your parents are dependant on you or not. Prima facie as your father must be still working (considering his age), they do not appear to be dependant on you. However, do they have any dependants on them? If yes, then you should get the term insurance in the name of the working family member, which could be your father or mother.

At the same time, you should get a term insurance for yourself. The purpose of having insurance is that it runs your financial plan smoothly. In other words, in case of any unforeseen circumstances of something happening to the earning member of the family, the family’s finances are not put at strain. Hence, it is very important to get the right person insured.

Surya Bhatia is a certified financial planner and principal consultant, Asset Managers.

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