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Ask Mint Money | ETFs, gold funds are cheaper and ensure purity of metal

Ask Mint Money | ETFs, gold funds are cheaper and ensure purity of metal
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First Published: Thu, May 12 2011. 10 33 PM IST
Updated: Thu, May 12 2011. 10 33 PM IST
I am 43 years old and my monthly take-home salary is Rs 65,000. I have a 12-year-old daughter, wife and mother. I have seven traditional policies. I have a unit-linked insurance plan (Ulip) that will mature in seven years, a pension policy with an annual premium of Rs 12,000 for 12 years and another pension policy for a premium of Rs 16,000 per annum for 10 years. I invest Rs 3,000 in gold. I have recurring deposits (RDs) also. I have a Public Provident Fund (PPF) and intend to save at least Rs 20,000 per year. I have Rs 8.5 lakh in Employees’ Provident Fund (EPF) till now. I have about Rs 4.5 lakh as fixed deposits (FDs). I want to save for my daughter’s overseas higher education and my retirement. I invest in five mutual funds every month. I can invest 45-50% of my salary. Please advise.
—Rajib De
You have 10 insurance plans; these are far too many. Evaluate the performance of the policies. In case some of them are not up to the mark, you can either surrender them or convert them as paid-up policies. But this is easier said than done.
As far as your life cover is concerned, you should have at least 10 times your annual income. I am not sure whether you are adequately covered even with so many policies. Also, plan to take health insurance for yourself and your entire family even if your employer gives you a cover.
Your investment in gold does not appear to be done either through an exchange-traded fund or a gold fund. Prefer these routes as they are more cost-effective as well as ensures the purity of gold.
There is no need for you to invest in RDs. Instead increase your savings in PPF. In case you are able to stop a few of your insurance policies, invest the freed-up cash in PPF. This is one of the best investment avenues which you are not utilizing. This can be used to maximize your returns without any capital risk and you should try and exhaust the investing limit.
You can continue your FD as it will give you the liquidity which is otherwise lacking in your portfolio. You may consider reducing the exposure in FD and the surplus can be either invested in PPF (if you are unable to use the maximum limit) or debt instruments such as fixed maturity plans (FMPs) and short-term debt funds. As you have higher concentration in debt and your needs are long-term, the mutual funds can all be equity-based.
If you plan to send your daughter for overseas higher education when she turns 21 years and assuming the current higher education costs Rs 20 lakh for two years and considering inflation at an average of 7% over the long term, you would need Rs 38 lakh. Hence you better make sure that savings are done to the best of your ability and the investments you make work hard for you. So pick the right investment vehicles.
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mintmoney@livemint.com
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First Published: Thu, May 12 2011. 10 33 PM IST
More Topics: Ask Mint Money | ETFs | Gold funds | Ulip | FD |