Home / Money / Ask-mint-money /  Avoid equity investments for short-term goals

I am 33 and wife and daughter (5) are dependant on me. I earn 33,000. These are my investments: 5,000 in PPF; 3,000 in Sukanya Samriddhi Yojana; 2,000 in NPS; 5,000 in an RD. I don’t have any medical policy. I had taken a life policy for six years; it will mature after 20 years. I have no knowledge of MFs. Kindly advise a plan.

—Raj Kumar

It is recommended to have financial goals on the basis of which you can create a portfolio. Some very basic goals which you can relate to can be your daughter’s education and your retirement. These are typically long-term goals. You may also want to have short-to-medium-term goals like buying a car, planning for a vacation and likewise. It is also good to create an emergency corpus. Defining goals will help in having clarity on short-term and long-term needs and will enable in identifying the right asset classes. For example, if the investment horizon is long-term, then having exposure only in fixed income securities is not a good option and it is recommended to consider equity-based mutual funds in the portfolio. Short-term goals means that both equity and lock-in securities should be avoided and based on the need of funds. This is true for emergency corpus funds.

You need to consider health insurance for your family and a family floater policy can be a good option. Consider options like cashless facility, network hospitals, pre-post hospitalisation, life-time renewal, free medical check-ups, claim process, waiting period and, of course, the premium. For your existing life insurance policy, check its performance and then decide whether you want to continue with the same.

I am 28 years old and unmarried. I am a government employee. After deductions of NPS of 6,000 per month and monthly premium of 6,000 towards life insurance, I am left with 48,000. I have taken a home loan for which I pay 24,000 as EMI. I have a retirement goal of 8 crore and I have to save around 10 lakh to buy a car in five years. Please help. 

—Aarti Verma

If you do the cash flow planning, there is an income of 60,000 per month net of taxes. After EMI, NPS, insurance premium, the net monthly income in hand is 24,000 per month. Subject to your monthly expenses, you can plan to save the surplus. 

Going forward you should consider equity-based mutual funds as an asset class for building a long-term portfolio. The asset class is critical in aiding the growth of the capital and hence you need to have equity exposure in your NPS account. Evaluate your insurance policy as an investment product. Assuming you have no dependants, you don’t need any life insurance policy. However, what you need is health insurance only if your government employment does not provide for the same. Any additional monthly savings can be made in equity-based MFs. Investing 12,000 for the next 30 years at an earnings rate of 10% will make a corpus of 2.73 crore. To achieve your target, have higher equity allocation as well as increase your monthly savings. 

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

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