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Photo: iStock

Ensure protection for minor children

  • The asset allocation of your investible corpus will depend on you risk tolerance level
  • Your financial goals all being long term, it is prudent to consider equity as an asset class. However, equity carries an inherent risk and, therefore, is recommended only for long-term goals which fit your profile

My wife passed away recently and I received 1 crore from her term plan policy. I want to use this money to secure the future of my six-year-old son and daughter, who is 10. I will need 20 lakh each for their college expense and 30 lakh each for their postgraduation. I also want to spend 25 lakh each for their weddings. My retirement is taken care of as I am in the Army. How should I invest the lump sum to reach my desired goals, after factoring in inflation?

—Maheesh Singh

The asset allocation of your investible corpus will depend on you risk tolerance level. The risk tolerance can be divided in two parts— risk capacity and risk appetite. As you have a secure job, you do have the risk capacity. At the same time, being a single parent, you need to create protection for your children as they are minors. Also, estate planning, including making a Will and appointing a guardian for them, is important.

The other aspect is the risk appetite, which needs to be determined to enable you to decide the asset mix. Your financial goals all being long term, it is prudent to consider equity as an asset class. However, equity carries an inherent risk and, therefore, is recommended only for long-term goals which fit your profile. At the same time, it is a volatile asset class and, hence, needs to be carefully evaluated before investing. You can consider equity mutual funds and invest in them in a staggered manner via systematic transfer plans (STPs) by first investing in a debt scheme, from where you can transfer the funds to equity. This will help in managing volatility easier for you.

You can spread your investments across various equity asset categories such as large-cap, multi-cap and mid-cap. You can also consider opening a Public Provident Fund (PPF) account to have a debt portfolio and also consider investing in short-term debt mutual funds to provide stability to the portfolio. And yes, with a good asset mix, you will be able to achieve your goals, after inflation-adjustment.

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

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