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If your financial goal is three years away, savings need to be more debt-oriented

  • The key to portfolio building is asset allocation
  • Monthly savings also need to have an equity bias

I am 31, married with no children. Our family’s total monthly income is 3 lakh. Our monthly expenses are 1.5 lakh, which includes EMIs. I want to invest the remaining 1.5 lakh. I also have about 30 lakh saved in my bank account for buying a flat in the next three years. I am already investing 3 lakh annually in provident fund (PF) and National Pension System (NPS) which is included in my monthly expenses. My risk profile is medium to aggressive. How should I go about building a portfolio for wealth creation?

—Name withheld on request

You have been quite proactive in managing your expenses and have saved well over the years. There are three parts to your savings. First, monthly investment from your regular income; second the lump sum of 30 lakh to be invested for three years for an apartment; and third, the savings through PF and NPS.

Given your risk profile, you should be investing your NPS corpus with the maximum permissible equity exposure. Since this investment is meant for the long term, it can also be part of your retirement corpus. Your monthly savings also need to have an equity bias.

Your property corpus is what needs to be well-protected and if your goal of buying the apartment is to be met in three years, the asset allocation needs to be more biased towards debt. The advantage you have is the investment tenure of three years, which will make the debt investment tax-efficient. The investment made in debt mutual funds will qualify as long-term capital gains if held for more than three years from the date of purchase and will, hence, be taxable at a lower rate along with the benefit of indexation. You also need to put aside adequate corpus for contingency purposes.

The key to portfolio building is asset allocation. The debt portfolio could be a combination of short- and medium-term mutual funds and the equity asset class can be a combination of large-, multi- and mid-cap mutual funds.

I used to work with a company five years ago and I now want to apply for PF withdrawal. My former employer is asking me to visit the main office in Bengaluru for PF withdrawal, but first they want me to generate my Universal Account Number (UAN) through the PF portal. When I tried, the portal said the details entered don’t match the member information. Can I withdraw my PF without UAN?

—Vanita Dhumal

It is recommended that you create UAN. If you have changed employment, you will have a UAN and it can be used for both the organisations—past and present. The benefit of having UAN is to access the PF account—to view balance and redeem online—without submitting physical documents.

However, if you are not employed or are self-employed or are not able to apply for UAN, you need to submit the PF withdrawal form, duly attested, to the regional PF office to withdraw the old PF. Attestation must be done by a defined authority such as a bank manager, gazetted officer or magistrate.

Surya Bhatia is managing partner of Asset Managers

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