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NEW DELHI : I'm a retired pensioner. My daughter works in an MNC, and transfers much of her money to my account saying that she tends to spend. Please tell me the maximum I can save in my fixed deposit and would it be better if she keeps her salary in her own account?

—Neela

 

Keeping excess money in the bank account or fixed deposit can be counterproductive. Your daughter may start investing her salary in more productive instruments that can help her grow her hard-earned money instead of just keeping it parked in the bank account.

As a first step, she can build a contingency fund in the bank account which can be her six to nine months' expenses. Once that is built or if this is already in place, she can invest her monthly savings for her future needs. Some of these needs could be buying a vehicle, vacation, wealth creation, etc. If she needs the invested money in less than three years, she may invest in debt, for future needs coming up in three to five years she can invest in a blend of debt and equity and for any goal above five years she can consider investing in equity.

The fact that she transfers her salary in your account every month to avoid overspending does show a strong intent at her end to save. This saving habit can be further taken ahead by following the above-suggested strategy to build a good investment plan for herself. Mutual funds are one of the best ways to invest in asset classes such as equities and debt. She can set up systematic investment plans (SIPs) for every month where the surplus money from her account will get invested in mutual funds on a pre-decided day every month. This will help her diversify investments and at the same time make the earned money work more for her. She is also in a position to invest for the long term and over the period the compounding effect of these regular investments will help her build a good portfolio, which will be much higher than the money just lying idle in bank account.

Have personal finance queries? Email us at mintmoney@livemint.com.

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