I am 28 years old and earning Rs50,000 per month. How much should I invest and what are the best instruments to invest that will enable me to retire at the age of 40 with enough corpus to spend for the rest of my life?

-Namita Khakharia

The savings which you can do is a variable of your income and expenses. On average, the savings should be 30-35% of your gross income. However, this does not mean that if you have a potential to save more you will not save more.

At your age, assuming you don’t have much responsibility, you should be able to save at a higher rate. But it does not mean that you have to be frugal in spending. It is all about spending wisely.

Further, there is no investment called “best investment plan". It is to be seen which fits your requirement. The only need that you have mentioned is to provide for retirement and considering your age, the asset class that will suit you the best is equity. And the savings should be done by the way of a systematic investment plan. Choose three to four funds. Diversify by picking large-cap, mid-cap, diversified and equity-oriented funds.

I am 28 years old and my salary is Rs40,000 per month. I have a few life insurance policies with premiums of Rs15,000 (sum assured of Rs2 lakh), Rs17,000 (sum assured Rs3 lakh) and Rs25,000. I put Rs25,000 every year in Public Provident Fund (PPF). I also have a Employees’ Provident Fund (EPF) deduction of Rs6,500 from my salary. I invest Rs2,500 per month in mutual funds (MFs) such as Birla Sun Life Tax Relief 96, DSP Tax Saver, Reliance Tax Saver and DSP Microcap. I want to increase my investment in MFs to Rs5,000. Which two funds I should go for a period at least five years?

-Karan Singh Bhardwaj

You have a good savings potential. With a saving rate of around 45%, your savings rate is better than many. There are periods in a life cycle where you have the potential to save more and that’s where you can give a push to your overall net worth, enhancing your overall corpus. You also get the advantage of compounding working in your favour.

The investments that you have done are revolving more around tax saving. Around 25% of your savings is going into paying insurance premiums. What you needed was to make sure your dependants are protected and for that you should have bought a pure term cover.

That is the case with most of your MFs, too. They are also biased towards tax saving. And as your tax saving limit under section 80C is exhausted by investing in EPF, PPF and insurance premiums, there is no reason why you should have so many of these funds.

The total saving of Rs5,000 in MFs can be distributed among diversified equity funds such as HDFC Equity, Birla Frontline Equity, and DSP BlackRock Top 100.

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