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Got a question about your money? What you should or should not do with it?
Our expert Uma Shashikant has the answers.
Out of my current monthly income of Rs 11,800, Rs 3,600 a month goes towards my home loan and Rs 3,615 is my annual insurance premium.
How must I plan for and save for my child and my own future?
- Mousumi Das
Public Provident Fund
Open a PPF account in your child's name.
Begin to regularly deposit small amounts into it. Since your PPF contribution is covered under the Rs 1,00,000 limit of Section 80C, this investment avenue offers the benefit of tax exemption as well as consistent savings.
However, this money will have to be blocked for a long time. This account is for 15 years and the money cannot be withdrawn before seven years are completed. Look at it positively. When it comes to saving for your child, this limitation is beneficial.
Mutual fund
Open a Systematic Investment Plan with a mutual fund and begin with Rs 500. An SIP allows you to deposit a fixed amount every month in a mutual fund. This money goes towards buying units of a fund. If the Net Asset Value (price of a unit of a fund) is high, you get fewer units. If it is low, you get more units.
You can increase this amount gradually as your salary increases.
Do not commit to large savings, when you may need liquid cash for unexpected expenses. In early stages of life such occurrences are common.
After a while, when you are comfortable with your savings, and your spending habits, you can slowly increase your savings ratio.
My wife and I take home around Rs 45,000 per month. I am able to save Rs 10,000 every month.
We have a four-month old daughter and would like to start investing for her. I want to have Rs 10 lakh (Rs 1 million) on her name by the time she turns 18.
- Puneet Kamra
Be regular
The benefits of compounding will work in your favour, since you have a number of years to accumulate the million. Even if you save Rs 5,000 per month and earned only 7% on this investment, you would have Rs 15 lakh (Rs 1.5 million) by 15 years.
The trick, however, is to invest regularly and without fail. And, do not draw out of the investment. Simply allow it to accumulate.
Mutual fund
Open a Systematic Investment Plan with a mutual fund that offers a product for children. An SIP allows you to deposit a fixed amount every month in a mutual fund. This money goes towards buying units of a fund. If the Net Asset Value (price of a unit of a fund) is high, you get fewer units. If it is low, you get more units.
You will save on costs if you did an SIP rather than a lumpsum investment.
Plan wisely
Choose a mix of debt (fixed-return investments) and equity (shares), with a higher proportion in equity for your daughter.
Broadly, you should divide your money into three parts:
1. A liquid portion that you will need for emergencies. Here, your money should be easily accessible. A good option would be a sweep account with your bank. The money will be in a fixed deposit and you can withdraw whatever amount you need when an emergency arises. The balance will continue to earn the designated rate of interest.
2. A growth option that will lead to an increase in your wealth. Choose an equity mutual fund and resolve not to touch that money.
3. The debt portion could be investments that offer steady returns at low risk.
The Public Provident Fund is one such option.
You could also consider a post office investment. A post office recurring deposit scheme, for instance, allows you to put in fixed amounts every month in your deposit.
How much you invest in each of the above will depend on how much risk you can take, and how long you can stay invested.
Illustration: Dominic Xavier
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