I am 26 years old and my annual income is Rs 6 lakh. I have savings of Rs 1 lakh. I want to build a corpus of Rs 20 lakh in four years for my higher studies. I can save Rs 20,000-25,000 every month. I want to know where should I invest so that I can meet my goal.
If you plan to save Rs 25,000 every month you will be able to save Rs 3 lakh every year which translates to Rs 12 lakh over four years. It will not be easy for you to convert the principal of Rs 12 lakh to Rs 20 lakh in a span of four years unless you plan to take high risk. Usually, in such scenarios, many investors consider equity or real estate as the investment vehicle to make fast money. While there is no harm in considering equity or real estate as an asset class, but investing in them for the short term may not be the best strategy.
Contrary to popular belief, real estate prices are also prone to correction and property markets can remain sluggish and illiquid for long periods. The same is true for equity markets and they can see sharp corrections and prolonged bearish phases. Hence, these asset classes need to be considered only with a long-term view.
Four years may not be a very short term but you can’t put all your assets in one basket. At the same time, the need you have defined of higher education makes it a trust need (essential future need)—the need where you assign the maximum weightage to safety followed by liquidity (in your case) and returns.
You need to create a balanced portfolio with a combination of debt, equity and gold. Start investing in these assets through systematic investment plans (SIPs). Consider MIPs (monthly income plans)—HDFC MIP and Reliance MIP are good options. Balanced and dynamic assets—HDFC Balanced, Birla SunLife 95 Fund, Franklin Templeton India Dynamic PE Ratio fund of funds—have been consistent performers. Gold exchange-traded funds (ETFs) or gold funds can be considered; Reliance Gold Savings fund, Kotak Gold fund and Gold BeES are few options.
You should also consider taking an education loan for the shortfall that you may have. This will also give you a tax break when you subsequently get back to work.
Lastly, take health insurance. This will help you when you are studying. In case you plan to go overseas, you can take student travel insurance for medical contingencies.
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
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