I am 44 years old and employed with an MNC. My current investments are in FD, PPF, MIS, NSC, VPF and NPS. I want to start a portfolio in mutual funds to fund the marriage of my two kids. One in 10 years and another in 15 years. I can spare up to Rs 30,000 per month for the same. What’s the most tax-efficient option? I have a healthy appetite for risk as well.
Response: Your current portfolio seems to be heavily skewed towards fixed income instruments. At your age, your long-term portfolio should ideally have an equity exposure of around 60-70%. Hence, before suggesting investment options for your daughters’ wedding corpus, I would suggest some changes to your existing portfolio.
First, create an emergency fund large enough to cover your unavoidable expenses for at least 6 months. This fund would save your long-term investment portfolio from any redemption pressure in financial emergencies by providing you with the necessary liquidity. While your existing FDs can be used to create your emergency fund, I would suggest you to steadily shift the FDs, as and when they mature, to scheduled banks like Suryoday Bank, Unity Bank, Utkarsh Bank, Ujjivan Bank and AU Bank. These banks usually offer much higher FD yields, currently 8% and higher, than the industry average.
You should also redeem your Post Office MIS (POMIS) account(s) after their maturity as the primary objective of POMIS is to provide a monthly income from one’s retirement benefits or to supplement one’s existing income from other lump sum receipts. As both PPF and NSC qualify for tax deduction under Section 80C and are equally safe due to the sovereign guarantee, restrict your future investments to PPF only. Invest the maturity proceeds of POMIS and NSC in equity funds, if those are not tied to any financial goal appearing within 5 years.
As your investment in VPF would already act as the fixed income component of your post-retirement portfolio, try to maintain at least 75% equity exposure in your NPS portfolio. As you near your retirement age, you can steadily reduce your equity exposure for higher fixed-income exposure.
Invest in equity mutual funds to create your daughters’ marriage corpus as the post-tax inflation-adjusted returns generated by equities usually beats fixed income by a wide margin over the long term. 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 flexicap category; and Kotak Equity Hybrid Fund and ICICI Prudential Equity and Debt Fund for the aggressive hybrid category.
Also, use 5-10% of your monthly investible surplus to purchase Sovereign Gold Bonds (SGB) in the secondary markets at monthly intervals. Apart from acting as a hedge against inflation, market volatility and economic uncertainty, your SGB investments would also help in accumulating gold for your children’s wedding. SGB also offers an interest income of 2.5% p.a. on the nominal value of the investment, apart from the scope of capital appreciation, a feature not offered by physical gold, Gold ETFs or Gold funds.
An edited version of this article was published in Economic Times on Jan 22, 2024.