I am 39 years old and have daughters aged 13 and 6 years. I am self-employed and my pre-tax income is around Rs50 lakh per annum. I have two major long-term investment goals. First, children’s education for which I need Rs50-60 lakh for my elder daughter in eight years and Rs70-75 lakh for the younger one in 14 years. Second, I want to retire 20 years from now. How do I build a comfortable retirement corpus? I am investing Rs45,000 per month in systematic investment plans (SIPs). I also invest around Rs90,000 per month in a flexible recurring deposit to build a contingency fund (one year’s expenses). My wife and I have recently opened National Pension System (NPS) accounts. We intend to contribute about Rs3 lakh each per annum in NPS. We have Rs20 lakh in Employees’ Provident Fund and Rs18 lakh in Public Provident Fund. The approximate current value of all insurance policies is Rs18-20 lakh. My mutual fund corpus is Rs9 lakh and investment in direct equity is worth Rs4 lakh. I am insured for Rs80 lakh (plus another Rs70 lakh for accidental death), while my wife is insured for Rs50 lakh. For our younger daughter, we have invested in an HDFC double benefit policy (premium per annum is Rs67,000), which should give around Rs20 lakh when she goes to college. Should I increase my allocation to equity once my contingency fund is in place? Also, can I put that money in as investment in a property?

-Arvind Kumar

Assumptions: We have assumed the growth rate as 5%, the savings will increase every year by this rate. Further, inflation has been taken at 7% and the interest at 9% (earnings) rate. The average savings has been taken as Rs1.90 lakh per month, which is your current monthly saving.

Financial planning: The first need of yours, your elder daughter’s education expense, is still eight years away. The proposed plan to start investing after the contingency fund and the choice between either equity or property comes from whether you stay in your own property or a rented accommodation. You seem to have your own property.

In that case if you want to continue staying in the said property, it may be better to invest in equity. The total inflation-adjusted amount you will be spending on your daughters’ education will be Rs76 lakh for the elder one and Rs1.14 crore for the younger one.

Your total corpus will be Rs18.80 crore at the time of your retirement net of these expenses.

Investment planning: You need to take higher exposure to risk as there is no short-term need. You have done well by starting SIPs. Limit yourself to few funds and spread your risk between diversified, large-cap, mid-cap and equity-oriented.

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