I am 34 years old and plan to retire by the age of 50-55. I have a six-month-old daughter. My take-home salary is Rs. 80,000 per month. I invest Rs. 7000 in the PPF, Rs. 4,000 in Kotka ELSS Tax Saver Fund, and also buy gold worth Rs. 10,000 every month. I have an HDFC term insurance for which I pay a premium of Rs. 3,200 a month. I intend to invest Rs. 12,500 a month in the Sukanya scheme. I live in my father’s house any pay no rent. How should I invest to secure my future?
Response: From the information shared by you, I am assuming you have a monthly investible surplus of about Rs 36,000. However, before making any suggestions for your investments, I would first suggest you secure your financial health by having adequate emergency fund and insurance covers.
While you have already purchased a term insurance policy from HDFC Life, ensure that it covers 10-15 times of your annual income. Also purchase a health insurance cover of at least Rs 1 crore, with a base health cover of Rs 5 lakh and super top-up cover of Rs 95 lakh, from either Niva Bupa or Aditya Birla health insurance companies to avail bigger health cover at very low premiums.
Your emergency fund should be able to cover your unavoidable expenses for at least 6 months. Park this fund in the fixed deposits of scheduled banks offering FD yields of 8% and above. Some of the banks that you can consider include Suryoday Bank, Unity Bank, Utkarsh Bank, Ujjivan Bank and AU Bank.
Now, coming to your investments, you can go ahead with your planned monthly investment of Rs 12,500 in Sukanya Samriddhi Account (SSA). Investments in this scheme qualifies for tax deduction u/s 80C while the interest income is tax free. As SSA offers higher returns than PPF while scoring equal on taxation, capital and income protections, you can trim down your annual investment in PPF to Rs 500, just to keep your account active.
Also contain your gold investments to 10% of your monthly investible surplus. The negative correlation of gold and equities makes gold more of a hedging instrument against equities than a growth-oriented asset class. Invest in gold by purchasing Sovereign Gold Bonds (SGB) in the secondary markets at monthly intervals. In addition to the scope of capital appreciation, SGB offers an interest income of 2.5% p.a. on the nominal value of their investment, a feature not offered by physical gold, Gold ETFs or Gold funds.
The rest of your monthly surpluses can be distributed equally among the large cap index, flexi-cap and aggressive hybrid fund categories through SIPs. You can consider the direct plans of ICICI Prudential S&P BSE Sensex Index Fund and HDFC Index Fund – S&P BSE Sensex Plan for the large cap index category; PGIM India Flexi Cap Fund and Parag Parikh Flexi Cap Fund for the flexi-cap category; and Kotak Equity Hybrid Fund and ICICI Prudential Equity and Debt Fund for the aggressive hybrid category.
You can stop fresh investments in Kotak ELSS Tax Saver Fund as your Section 80C deductions would be covered by your monthly investments in SSA and your equity exposure would be compensated by investing in the above-mentioned equity funds.
An edited version of this article was published in Economic Times on Jan 15, 2024.