NEW DELHI :
I am 28 years old and my net monthly salary is approximately ??80,000. I have accumulated ??5 lakh in fixed deposits so far. I contribute ??1.2 lakh annually to the Public Provident Fund (PPF) for my retirement security and to save taxes under section 80C of the Income Tax Act. i can save ??30,000 per month, and I want to invest in mutual funds. How do I proceed?
—Name hidden on request
Considering your young age, I recommend that you invest in stocks to achieve long-term financial goals, that is, those that expire after five years. Start by identifying your financial goals that expire within five years and those that expire after five years. As stocks can be very volatile in the short term, invest in the direct plans of these short term debt funds – ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund – via SIPs to achieve your short term financial goals. You can use the online SIP calculators to find out the monthly contributions required to meet these short-term financial goals, assuming an annualized return of 5% per year.
Your existing investments in term deposits can be used as an emergency fund to meet financial demands resulting from job loss, illness, disability, etc. Try to maintain an emergency fund large enough to cover unavoidable expenses and monthly contributions for critical financial goals for at least six months.
The rest of your monthly surplus should be invested in equity funds to achieve long-term financial goals. You can distribute the surpluses in the direct plans of these large-cap index funds and flexi-cap / “large and mid-cap” funds: Tata Index Sensex Fund or HDFC Index Sensex Fund; and Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund — via SIPs.
If your risk appetite allows, you can invest in Equity Linked Savings Program (ELSS) funds instead of Public Contingency Fund (PPF) to serve the dual purpose of saving tax by under section 80C and ensure the security of your retirement. ELSS funds offer higher liquidity as they have a three-year blocking period, the shortest among all investment instruments eligible for the Section 80C deduction. Since ELSS funds invest in stocks and stocks as an asset class far outperform fixed income instruments over the long term, investing in ELSS can help generate a larger retirement body than the PPF.
Naveen Kukreja is the CEO and co-founder of Paisabazaar.com. Please send your questions and opinions to [email protected]
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