Home/ Money / Ask-mint-money/  RDs are not advisable for long-term investing

I am 34 and have a four-year-old child. My wife and I earn 2 lakh per month. For the last 10 years, I have been investing in SIPs of Reliance Value Fund ( 5,000), DSP BlackRock Top 100 ( 5,000), Birla Sunlife Front Line Equity ( 5,000) and SBI Bluechip fund growth direct ( 5,000). I also have a recurring deposit of 15,000 per month and a fixed deposit of 3 lakh. My wife and I have a 1 crore term cover each. We have family health insurance worth 5 lakh. We also have a cover of 5 lakh from traditional life policies. Our goal is to have 1 crore in the next 15 years for our child’s education and 2 crore in next 25 for retirement at age 60.

—Richa Sharma

The current savings of 35,000 per month will be sufficient for you to achieve the targeted sums. However, will the targeted amount be enough for your retirement will depend on inflation. And there could be more financial goals you would have in times to come. So determine your savings potential—your current income in hand net of regular expenses. You should target this amount for savings.

Your insurance covers are in order with both life as well health insurance. Do review the same at regular intervals based on your needs as well as health inflation.

The goals being long term it is recommended that instead of an RD, you start investing in a hybrid equity fund and a short-term debt fund. The short-term fund can also act as a contingency fund.

Three of your mutual funds are large-caps. Having one fund in the large-cap category is good enough—you can pick Birla Sunlife Frontline Equity or SBI Blue Chip. You can replace the others with multi-caps and mid- and small-caps. Invesco Contra and Mirae Asset India Equity are good multi-cap funds. And in the mid- and small-cap space, HDFC Small Cap and SBI Small Cap are good funds.

I am 22 years old and earn 35,000 per month and can invest up to 20,000. I plan to go abroad to study when I am 28. It will be partially funded by parents, but I want to raise 20 lakh. Please advise.

—Kasturi Iyer

It is good to hear that at such a young age you are planning to save and are focused towards savings for your own higher education as well as planning ahead of time. The period considered is also good to have equity as an asset class for investments. The education goal being a “trust goal" i.e. a goal which is to be met at all costs, the risk level can be moderate to medium and the equity exposure is to be gradually reduced as you come closer to achieving your target.

A savings rate of 20,000 per month for six years will accumulate 14.40 lakh and assuming an average of 10% as earnings will result in a corpus of 19.78 lakhs. As your salary will go up every year, you can increase the savings rate based on your increment. This will also help in ensuring that you don’t take a higher degree of risk. At the same time, you can start with a higher percentage of equity allocation in the initial years i.e. for the first three years before you can reduce to have a high exposure to debt securities which will also help in averaging your debt-equity allocation.

You can consider mutual funds where monthly investments can be started via SIPs (systematic investment plans). You can consider a mix of balanced fund (SBI Hybrid Equity Fund), large-cap fund (ICICI Prudential Blue Chip Fund) and multi-cap fund (Mirae Asset India Equity Fund) within the equity asset class. In the debt category, pick short-term debt funds.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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Updated: 09 Oct 2018, 09:22 AM IST
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