Ask Mint Money | Consider FDs with longer tenor since interest rates may reduce

I am 29 years old and earn a net salary of Rs50,000 per month. I contribute Rs70,000 per year in Public Provident Fund (PPF) and have adequate health policy. I have no other savings. I want to build a corpus of Rs20 lakh in another five-seven years for buying a house. How much should I save and where should I invest? Also, my mother recently retired from her job and draws a pension of Rs20,000 per month. She has Rs18 lakh in cash. I want to invest the money in such a way so that she receives regular income. Please suggest.

—S. Narayan

A net salary of Rs50,000 and assuming no major expense, you should be able to save Rs25,000 per month. And if that is possible you can assign Rs20,000 for the house need and the balance Rs5,000 can go to the PPF. The PPF limit has also been increased from Rs70,000 to Rs1 lakh. You can aim to deposit the maximum. In addition, you should continue paying your health insurance premium.

Regarding your savings for your house, if you save Rs20,000 per month in six years, your principal investment will be Rs14.40 lakh. At an interest of 10%, your corpus will become Rs18.5 lakh. In seven years, the same amount will be Rs16.80 lakh and Rs22.77 lakh, respectively.

You should also try to increase your monthly savings every year along with your salary increase and logically you can increase by the same increase in percentage. This will help you quicken your savings and counter inflation.

These savings can be made in monthly income plans (MIPs) and hybrid funds. You can also consider taking some risks and some exposure can be taken in equity funds, provided you have the risk appetite. In the MIP category, Reliance MIP, HDFC MIP, Canara Robeco MIP have been consistent performers. In the hybrid space, HDFC Prudence, HDFC Balanced and Franklin Templeton India Dynamic PE Ratio FOF are recommended options. For equity investments, you can start with large caps and here ICICI Prudential Focused Bluechip is a good option.

Coming to your mother, she should consider a combination of bank fixed deposits, MIPs and should also take limited exposure to hybrid funds. In all these investments, she should opt for the dividend or interest payout option. Fixed deposits can be run for a longer tenor as it is expected that interest rates will come down over a period of time.

Surya Bhatia, certified financial planner and principal consultant, Asset Managers

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