I am 32 years old and earn Rs 55,000 per month. My monthly expenses are about Rs 20,000, and I have loan instalments of Rs 20,000 per month. Additionally, I hold a LIC policy with a sum assured of Rs 15 lakh, maturing in 2050. My monthly NPS contribution is Rs 6,000. I seek advice on how to effectively save or invest for the future with my remaining salary.
While you have not shared any details about your existing investments or financial goals, I am assuming you have a high risk appetite given your young age. Thus, I would suggest you to invest your monthly investible surpluses with an asset mix of 8:2 in equity and fixed income instruments.
But before suggesting any investment instruments as per your asset allocation strategy, I would suggest you to create an emergency fund to cover your unavoidable expenses for at least 6 months. You can park your emergency fund in the fixed deposits of scheduled banks offering FD yields of 8% and above, like Suryoday Bank, Unity Bank, Utkarsh Bank, Fincare Bank and Equitas Bank. As equities can be very volatile in the short-term, park your contributions towards financial goals maturing within 3 years in fixed deposits of the above-mentioned banks. These FDs would form a part of your fixed income portfolio.
Also increase your life insurance cover to 20 times of your family’s annual expenses to ensure financial security for your dependents in your absence. Purchase term insurance plans for increasing your life cover as these plans offer large life covers at very low premiums. Surrender your existing LIC policy if it is not a term plan. Non-term insurance policies charge very high premiums while offering inadequate life cover and suboptimal returns. You can visit Policybazaar.com to compare and choose term insurance cover(s) from any of the following private sector life insurance players — ICICI Prudential, HDFC Life, Max Life, Tata AIA, PNB Metlife and Bajaj Allianz Life.
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. You can visit Policybazaar.com to compare and choose health insurance cover(s) from any of the following private sector life insurance players — Niva Bupa or Aditya Birla health insurance companies. These health insurance companies offer bigger health covers at very low premiums.
For your equity portfolio, I would suggest you to invest in equity-oriented mutual funds through SIPs. You can spread your monthly equity contributions equally between the direct plans of large cap funds, flexi cap funds and multi-asset funds. You can consider Parag Parikh Flexi Cap Fund and Quant Flexi Fund for the flexicap category; ICICI Prudential Bluechip Fund and HDFC Top 100 Fund for the large cap category; and Quant Multi Asset Fund or ICICI Prudential Multi Asset Fund for the multi-asset category.
As retirement planning is a long term financial goal and equities beat other asset classes over the long term by a wide margin, I would suggest you to maintain a pro-equity bias in your NPS contribution too. Invest at least 75% of your NPS contribution in equities while the rest being distributed between corporate and government bonds.
Ensure to check your portfolio at periodic intervals and rebalance your portfolio to your 8:2 equity-debt mix if a steep market correction or a strong out-performance by any of asset classes leads to a significant change in your asset allocation ratio.
An edited version of this article was published in The Economic Times Wealth on April 8, 2024.