PremiumAllocate the savings that you generate post home purchase, towards a combination of passive and diversified equity mutual funds, both domestic and international, to help achieve the corpus for the retirement and other goals
I am 32 years old and draw a salary of ₹2 lakh per month. I have recently got married. I have already bought life insurance and health insurance. My monthly expense is ₹45,000. My investments include ₹1.5 lakh per annum in PPF, ₹7 lakh in mutual funds (MF) so far and ₹10 lakh in equity. I also have fixed deposits worth ₹10 lakh.
I want to buy a house worth ₹1.5 crore in the next two years by taking a loan and using savings and investments and buy a car in the next 7 years. I want to retire by the age of 50 years with a corpus of ₹6 crore.
How should I allocate my monthly salary to different investment schemes to achieve my goals?
— Name withheld on request
Considering that you have a short-term requirement of funds for buying a house through a combination of savings, investments and a loan, you may wish to start reducing your equity exposure gradually and invest your savings over the next couple of years, in arbitrage funds and short-term debt funds to support the down payment for the home. Assuming an interest rate of 8.5%pa with a principal of ₹1.15 crore and loan duration of 20 years, you should be paying approximately ₹1 lakh per month as an EMI. We are assuming that your salary will grow by 8% per annum and expenses will grow by 6% per annum over a longer time frame, as well as the fact that you will continue to invest savings over and above your expenses and EMI.
We would advise to allocate the savings that you generate post home purchase, towards a combination of passive and diversified equity mutual funds, both domestic and international, to help achieve the corpus for the retirement and car goals. You have mentioned that you want to purchase a car after seven years, which should be possible, and at 50 years of age, your retirement can be funded through the corpus created by the PPF, MFs and fixed deposits.
I am currently pursuing my post graduation and got placed with one of the top broking firms. My annual CTC is ₹10 lakh. I have zero knowledge about stock market or mutual funds, etc. I would like to know the best way to invest and get decent returns.
—Name withheld on request
As per a thumb rule, 20%-30% of the salary should be allocated towards savings and investments as you have started your earnings. It is important you start investing in mutual funds as they are suitable vehicles for new investors who want to invest in equity markets. Build the portfolio such where there is a mix of passive and active schemes. Invest through a combination of index funds, mid cap and small cap funds. This should help you to cover all the market caps in the listed equity space. Link your investments with your goals and select the funds depending on your goal’s time-frame. If goals are for shorter time duration, then one should opt for debt funds like liquid funds or low duration funds. If the goals are long-term then one can opt for equity-oriented funds as they should be able to beat inflation. Also make sure that you have adequate life insurance and health insurance as this will help you to protect you against medical emergencies and not strain your savings
Vishal Dhawan is a certified financial planner and founder of Plan Ahead Wealth Advisors.
