ot a question about your money? What you should or should not do with it?

Our expert Uma Shashikant has the answers.

Age: 23 years

Annual income: Rs 2,40,000

I have an insurance cover of Rs 500,000, which requires me to pay an annual premium of Rs 32,448.

I also have around Rs 100,000 in my provident fund.

This is my dilemma.

My sister will be getting married soon. I also need money to pursue my MBA next year. Since I plan to do it abroad, I will need around Rs 35 lakh (Rs 3.5 million).

I will have to rely on loans and scholarships to cover these expenses.

What do you suggest I do?

- Ahlad Prasad

It could be tough getting an educational loan without any collateral. You could perhaps look for a guarantor who has a higher level of assets.

Even if you manage scholarships for most of the expenses, you will need at least Rs 200,000 to Rs 300,000 before you can begin your studies abroad. 

You may not get much if you surrender the policy. Public Provident Fund money cannot be withdrawn before seven years. The account is for 15 years, and you can draw only 50% of the balance from the eighth year onwards.

Since you are looking at a one-year time frame, you may not be able to take risks like investing in an equity fund or the stock market. You have only a year to go and you cannot take risks with the money in the short term.

Focus on investments that enable you to draw the money when you need it -- for you and for your sister's marriage. You could look at bank fixed deposits and Fixed Maturity Plans of mutual funds.

• Your questions on education loans answered

I am 23 years old and have been insured for Rs 20 lakh (Rs 2 million) by my mother. The annual premium is Rs 72,000. I also have two money-back policies.

With the bonus rates coming down heavily, I think it is ridiculous at such a young stage to put in nearly Rs 100,000 every year as insurance premium.

My query is: should I surrender my LIC [Get Quote] after five years or even three years once the bonus gets accumulated and invest them in mutual funds and shares?

- Balaji M

Yes, at your age you are better off with equity. If you are willing to ride through the ups and downs of the stock market without getting flustered, consider equities.

Equity is a good way to build your wealth. But you must have the patience and discipline of a wealth builder, and stay away from taking speculative bets. 

If you choose to buy shares yourself, be careful about what you buy. Take the time to know the business and understand the numbers. 

Even if you pick one or two stocks a year carefully, you could create a blue chip portfolio for yourself in 20 years, which will be highly valuable. 

A more sensible approach is to invest in a diversified mutual fund. Even assuming a 12% return, if you set aside Rs 10,000 every month for 20 years, it translates to Rs 1 crore (Rs 10 million).

However, discipline is the key, whether you use mutual funds or invest directly.

The insurer determines the surrender value of the policy. For a short period of three years, you may not get any attractive bonus.  

• How to invest in a mutual fund

I am 27 years old, earn Rs 24,000 per month and expect my income to grow by 12% annually.

I will be getting married in a year and plan to buy a house worth Rs 18 lakh (Rs 1.8 million) next year.

My investments till date are:

- Rs 55,000 in the PPF
- An LIC policy where I pay an annual premium of Rs 21,000
- Bonds
- Pension policy

I would like to retire by 45-50.

- Neeraj

Your housing loan's Equated Monthly Installment will take away most of your monthly earnings. A loan of Rs 18 lakh (Rs 1.8 million) could result in an EMI of Rs 16,000.

To understand what EMIs are, read 10 home loan terms you must know.

After allowing for your insurance premium of Rs 1,750 per month, Rs 6,250 per month may be insufficient to take care of both your needs.

You could end up accumulating credit card debts, which come at a much higher rate of interest.

Augmenting your income is your first priority. Perhaps your should seriously consider asking your wife to work as well. The 12% hike that you assume in your income could still fall short of your needs.

Perhaps you will need a car, you need to fund your outings, gifts and social spends that typically rise soon after your wedding. 

Give yourself three to five years to earn, spend, save and create a buffer of investments that can be drawn on when you have an unexpected need for money. 

Invest in a house. If you do, consider a smaller, less expensive one to begin with, so that your EMI is not more than Rs 8,000 per month.

You can buy a bigger house after your finances have stabilised.

Illustration: Dominic Xavier

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