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

Our expert Devang Shah has the answers.

I am 29 years old with a take-home of around Rs 30,000.

Since I have two dependents (my wife, one-year old child), I have invested heavily in life insurance. Rs 43,000 per annum goes towards these policies.

In addition, I have taken out a policy for my son at Rs 10,000 per annum.

I pay Rs 10,000 per annum towards medical insurance for me and my spouse.

My other investments are in a Unit Linked Insurance Plan, tax saving bonds, National Savings Certificate, mutual funds, Public Provident Fund and stocks.

My monthly expenses are Rs 15,000 and I am a member of a holiday club for which I pay Rs 7,000 per month.

How must I invest to have a substantial amount when I am 50 and maintain the same lifestyle? I will also have to consider my child's education and marriage expenses.

- D Doshi

Hi.

I have a few suggestions.

1. We often find that using insurance as an investment vehicle can be very expensive. As an alternative, we simplify the situation into term insurance and mutual fund investment. That often gives lower expenses, more flexibility and more control. Please do revisit your insurance investments and certainly take a non-sales opinion before you buy your next insurance product. Do not take advice from an insurance agent who gets a commission on selling you a product.

2. Your figures of insurance premiums plus your expenses all add up to a total of about Rs 32,000 per month. Which is more than your take home. So I can understand your concern of wanting to save up. If you want to be able to keep spending Rs 20,000 (in today's prices) every month from the age of 50 for another 40 years, you will roughly need to invest Rs 45,000 every month from today for the next 21 years. Obviously, this is based on certain assumptions, one of them is an investment of 50% of your total investments in equity.

3. For the next year or two, it may be useful for you to just create a habit of building your mutual fund Systematic Investment Plans. This will entail you saving fixed amounts every month that go to your mutual fund. After that, you will need to revisit your assumptions of how much you can save, for what you want to save, how much, when, and when you want to retire.

Please do not let the figures disappoint you. They are a mere mathematical calculation. Use them as a temporary beacon till you get a formal financial plan done for yourself.

I work as a software professional with an annual income of Rs 3,00,000. I am expecting a bonus soon.

Since this is my first job (began work on April 1, 2005), I have no substantial savings, except a bit in equities and mutual funds totaling Rs 50,000.

My monthly expenses are relatively low at this point of time as I'm staying with my sister. I send Rs 5,000 to my parents every month and, on an average, my expenses amount to Rs 5,000.

Please let me know how can I plan my savings. I will be getting married sometime this year and will need liquid funds for the event.

- SR

Hi SR.

What is the amount you will require for your wedding? Probably the best way to put that aside might be in a liquid fund like DSP Merrill Lynch Liquidity Fund. Liquid funds invest in fixed return instruments of a very short term maturity. They give a return that is slightly higher than a savings bank account and are as safe.

If you can save over and above that, you could consider Systematic Investment Plans. SIPs allow you to invest a fixed amount every month in a mutual fund of your choice. That makes it a discipline and it also works very well from the point of view of the price you buy a mutual fund.

Higher prices get you lower units and vice versa. We always want to achieve that, don't we? It also takes the attention away from timing the market.

It is difficult to tell you which mutual fund without knowing whether and how much will you be able to save up. But money that you can put away for another 10 years could be actively considered for equity mutual funds like Templeton India Growth Fund and Prudential ICICI [Get Quote] Discovery Fund. These are mutual funds that invest in the stock of companies of various sectors.

Short term money needs to go into debt mutual funds (funds that invest in fixed-return instruments).

I hope that helps.

I am 29 with a monthly salary of Rs 21,000. My husband earns the same. We plan to buy a house in the next two years.

I have dependent parents and a sister.

I also need to save for my old age.

Over the past three years, since I got married, this is all that I have managed to save.

National Savings Certificate: Rs 30,000
Post office schemes: Rs 40,000
Public Provident Fund: Rs 20,000

- Sonia Katdare

Hi Sonia.

Buying one's own house is a very fulfilling event. Since you have only two years to go, you will not really be able to invest the money in equity.

You will need to invest in debt funds like Templeton Floating Rate Income Fund or Grindlays Floating Rate Fund, where you might earn 5% to 6% returns. These are mutual funds that invest in fixed-return instruments that have a floating rate of interest, not fixed.

If you save Rs 10,000 every month, that could create a corpus of about Rs 2,50,000, allowing you to take a home loan of about Rs 10 lakh (Rs 1 million).

If this is your first house, you might want to save all you can so that you do not have to make a trade-off for a house that was your second preference. It might be useful to start planning for retirement once that is done.

I also observe that none of your current savings allows you to withdraw money at short notice. You need to create a contingency fund which could be put away in a liquid fund or just a fixed deposit, so that you have the money for emergencies.

A liquid fund is a mutual fund that invests in instruments with a very short-term maturity. They work more like alternatives to the savings bank account.

Wish you all the best.

Illustration: Dominic Xavier

Got a question for Devang Shah? Please write to us.

Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).