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Ask Mint Money | Every hike in salary should mean proportional increase in savings

Ask Mint Money | Every hike in salary should mean proportional increase in savings

I am a 35-year-old divorcee and need to start saving from scratch as I was not investing in anything till now. I earn 25,000 every month and can save 5,000. I will need 3 lakh for my higher studies in the next three years and 10 lakh in the next 8-10 years to start my business. I have an insurance policy. However, I don’t have any dependants now so should I continue the endowment plan? Please suggest funds where I should invest.

—Jia Shah

You can meet your goal of higher education with a combination of education loan and partially from your corpus accumulated over the next three years. Education loan comes with many advantages: repayment holiday which means you need to start repaying the loan after your education is over and your repayment tenor can be up to 10 years. This along with the tax benefits on the interest gives you an added advantage. However, you may be asked to provide for a collateral security against the loan disbursed as well as a third-party guarantee.

Your principal savings will be of 1.80 lakh and with interest accumulation, the savings available will only go up.

For this need, your investment horizon is not long-term as funds are required in the next three years. Hence, equity as an asset class is not recommended. Also, considering your marginal rate of tax, it is recommended you invest in a recurring deposit for three years. At present, with high deposit rates and the expectation that the interest rates may come down in the next few months, the timing is just right for you.

For any further potential to save in the next few years, you may consider equity as an asset class and can start systematic investment plans (SIPs).

Also, ensure you do your risk profile, which is understanding your ability to take risk. This will help you determine how much exposure to equity should be taken.

Based on the same, you can start with hybrid funds, where exposure to equity is more than 65% and the balance is invested in debt securities.

Funds such as HDFC Balanced, HDFC Prudence and Tata Balanced have been consistent performers and your horizon needs to be long-term for the same.

As far as your insurance needs are concerned, the policy needs to be evaluated. But you should consider buying a health insurance policy for yourself (in case you don’t have it already).

Surya Bhatia, Certified financial planner and principal consultant, Asset Managers

Queries and views at livemint@mintmoney.com

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