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When you are young, maximize savings as you may have fewer responsibilities

  • Surplus of income over expenses should be invested
  • EPF is an investment avenue for retirement planning

I am 28 years old and earn about 1 lakh a month. I invest around 30,000 in mutual funds via systematic investment plans (SIPs), of which a majority are equity schemes. I also have a life insurance policy. I plan to get married in the next one year for which I would need around 30 lakh. Could you suggest an investment plan?

Muskan Lalwani

You have been mainly on the right path. However, maximize your savings. The first step is to check your cash flows. Surplus of income over expenses should be invested. While the savings amount of 30,000 per month is good in relation to your income, at a young age you can save more as the expenses are limited at this stage. With marriage, responsibility goes up and so do expenses. It is recommended that you increase your investments at this age. The second point is asset allocation. Equity is a recommended asset class for long term and debt should be considered for short-term goals. Your equity allocation is high and you need a large sum for your wedding in a year’s time. So you need to stop equity investments and for the next one year, invest in an ultra-short term debt fund. However, this amount alone will not suffice. Hence, you need to either dip in your existing investments or take a loan against the same. You can even check if you can borrow funds from your family. Lastly, if nothing works out, then go for a personal loan. This should be the last option and the intent should be to repay it at the earliest. If you go for the loan, ensure that your savings are channelized to pay off the debt. Avoid credit card trap, i.e., paying from credit cards and converting the same in an EMI. This is an easy way of getting into a debt trap and is also a very expensive way of funding.

I plan to work In Europe for a few years. I have an Employees’ Provident Fund (EPF) account that is nine years old. Should I withdraw the money?

Raghu Vamsi K.

EPF is an investment avenue for retirement planning. With years of contribution both by the employer and the employee and along with the interest, the benefit of compounding starts working and accumulating to a sizeable corpus. On top of it, the tax-free status given to PF makes it an attractive option as it is a secured debt offering assured tax-free return, typically in line with inflation. The PF account continues to earn interest till your retirement whether or not you are employed.

However, remember that the interest earned in the EPF account becomes taxable prospectively in case there is no fresh contribution to the account, thereby diminishing the returns net of taxes.

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


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