I am 30 years old. I have Rs7 lakh and I plan to close my personal loan with Rs5 lakh next year and open a fixed deposit with Rs2 lakh. I have a retirement plan for which I pay Rs48,500 per annum and I pay Rs11,000 and Rs1,604 every quarter for life insurance policies. I have been putting Rs5,000 per annum in Public Provident Fund (PPF) for the past eight years. I earn around Rs30,000, of which Rs11,500 goes as instalment towards loan and I am left with Rs18,500. I have decided to invest at least Rs10,000 per month in four systematic investment plans (SIPs). I have shortlisted Reliance Mutual Fund, DSP BlackRock, Birla Sunlife and HDFC Mutual Fund. I will be left with Rs8,500, of which I have decided to invest Rs5,000 in PPF per month. Where should I invest the balance Rs3,500 so that I can use it in times of emergency. My risk appetite is very low.
Starting with your current investible surplus, if you are planning to prepay your personal loan for which you have funds, why do you want to push that to next year? In case it is shortage of funds, you can partially use from the balance investible surplus of Rs2 lakh. There is no reason why you continue paying interest on the loan when the funds at your end will not be able to earn you enough to cover the interest cost. However, you should be aware that prepayment of personal loan typically carries a charge. Once you have prepaid the loan, the instalments you pay can be diverted towards savings.
For your retirement planning, you have been trying to find solutions when one exists right under your nose—PPF. You should have started monthly investment of Rs5,000 in PPF much earlier.
As far as your investments are concerned you have selected four good fund houses. The key is now to select funds within these. You have mentioned a low risk appetite. It will be prudent if you consider low-medium risk in the portfolio as the same will give a kicker to the overall return in the portfolio. You can consider balanced funds. Funds such as HDFC Prudence, HDFC Balanced, and Birla Sunlife 95 Fund are good options. These funds have a minimum equity exposure of 65% and the balance is invested in debt instruments. You should be looking at long-term investment in these.
Another option you can consider with lower equity exposure is monthly income plans. These funds take risk exposure of 10-25% depending on the funds you select. Options such as HDFC MIP and Reliance MIP have performed well.
Your emergency fund can constitute of a bank recurring deposit and short-term funds. You should also have a health cover. This is important and will ensure there is no dent in your long-term financial planning due to a medical emergency.
Surya Bhatia, certified financial planner and principal consultant, Asset Managers
Queries and views at email@example.com