I am a 36-year-old, middle-class, salaried person, earning a net salary of Rs 30,000/- per month. I am the only breadwinner in the family with a 3-yr-old child. I need to build a corpus for my child’s higher education and for my post retirement life, as my job is not pensionable and I am enrolled under a defined contribution pension scheme. I have a lump sum of Rs 1 lakh and wish to invest Rs 8,000/- per month for both of my above-mentioned goals. Please suggest which fund/portfolio to invest in, to see at least 12% returns at the end of my investment horizon. I also worry about my hard-earned money being lost if the funds give negative returns. Should I stop thinking about mutual funds and go for fixed/recurring deposits and buy a piece of land later? Please guide me.
— Subbarao Sankara Gnana
Harshad Chetanwala, Co-Founder of MyWealthGrowth a mutual fund advisory firm, based in Mumbai responds:
I understand your concerns related to the volatility and chances of negative returns in equities. At the same time, I would like to share that you cannot build a reasonable corpus without investing in equities. Your financial goals appear to be long term in nature and hence you can look at investing in equity diversified funds. Investing the entire money in fixed deposit or recurring deposit will not help you accumulate enough for your goals. Land as an option also has lot of conditions pertaining to price, location and liquidity. You can look at investing Rs 4,000 to Rs 5,000 out of your monthly savings of Rs 8,000 in equity funds.
To begin with you can start investing in index funds and large cap funds like UTI Nifty Index Fund or HDFC Index Fund Nifty 50 Plan (Rs 2,500 to Rs 3,000) and Mirae Asset Large Cap Fund (Rs 1,500 to Rs 2,000). Invest the remaining monthly savings in a mix of PPF and Bank RD. When you feel more comfortable with volatility of equity investment, you can increase your investment in equity funds. It is recommended that you build some sort of a contingency fund for yourself by keeping aside 6 months of your monthly expenses in a bank account.
Also, you have mentioned that your family is dependent on your income. It will be good to take a term insurance of around Rs 50 lakhs for yourself which ensures financial protection for your family. You may use your Rs 1 lakh to first take care of the contingency fund and term plan. If both these things are in place, then you can invest 50% in equity funds and rest in PPF. Considering the market levels at present, it is suggested to invest in a staggered manner.