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Ramesh Pathania/Mint
Ramesh Pathania/Mint

Returns over the long term should be inflation-adjusted

If you are not able to get the targeted return, do check whether you are in the right plans

I am 40 years old and my net earning is 5 lakh. I have around 3 lakh in Employees’ Provident Fund (EPF), and I also have 4.5 lakh in insurance policies and 50 lakh as term plan. I have a loan—with a tenor of 10 years—of 9 lakh that I had taken to buy a plot. I may switch to a new job soon. Should I continue to invest in the current EPF account, or withdraw and invest in the equity market? If so, please suggest some good stock names for the long term, say, for more than 5-10 years. Also, I got a decent hike in salary. I want to invest the increased amount into either a recurring deposit or a chit fund (government registered) or mutual funds (MFs) through systematic investment plan (SIP) for 5-10 years. Which funds will give tax benefit as well as good returns?

—Veerabhadra B.H.

There are two components of your savings—existing savings and future savings. Existing savings can be divided into investments and insurance. Insurance is are taken to ensure that your financial plan runs in order and in case of any mishap, your family does not go through a financial crunch. So, ideally a sum assured covering your loans, liabilities and protecting your future income is recommended. In your case, you have a life cover of 10 times your annual income, which prima facie appears to be in order. However, this needs to be reviewed periodically. In existing investments, you have a provident fund, which helps in creating a retirement corpus. There are investments in insurance plans over and above your term plan. Here you need to be careful as the purpose of investment after meeting the insurance is to ensure that it gives a return over a long term which is inflation-adjusted. So, if you are not able to get the targeted return, do check whether you are in the right plans, and if not, check if there is an option to surrender or even convert the policies to a paid-up policy. Consider doing equity investments with the funds you receive (in case of surrender) and the recommended way to invest is through an SIP. In case of lump sum, you can invest through systematic transfer plan.

Withdrawal from EPF is not recommended as you also need a secured asset class in the future. However, for your future savings, consider investing in equity MFs through SIPs. You have a long-term horizon, so create a mix that is spread across asset classes and has a combination of schemes—large-cap wherein ICICI Prudential Focused Bluechip and Franklin India Bluechip are good performers; multi-cap wherein Birla Sun Life Frontline Equity, Franklin Prima Plus and Mirae Asset India Opportunity have done consistently well; and mid-cap funds such as HDFC Mid Cap Opportunities and BNP Paribas Mid Cap have done well.

You can also look at balanced funds wherein Tata Balanced and HDFC Prudence have been stable. For tax-saving funds, consider Axis Long Term Equity and Reliance Taxsaver.

Queries and views at mintmoney@livemint.com

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