Readers' Corner: Financial planning

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I didn't plan my taxes well this year. I want to start right from April for next year. Can you suggest how I should go about it? I am 29, single and earn Rs 50,000 a month.

For next year, you have several options such as equity-linked saving scheme (ELSS), Public Provident Fund (PPF), National Saving Scheme (NSC), five-year fixed deposit (FD), insurance premiums, and pension plans, in addition to your contribution to Employees' Provident Fund (EPF). The best investment you can make is an SIP or lump sum investment in an ELSS fund. You can even consider investing Rs 50,000 in National Pension System (NPS). Don’t forget the medical benefits for yourself as well as your senior-citizen parents under Section 80D.

I am 32 and have a salary of Rs 60,000 a month. I am risk averse but want to invest Rs 5,000 in mutual funds for around 15-18 years. Is ELSS a good option for me? 

ELSS is a fantastic option. It is a combination of a tax saving scheme and a great investment idea. Historically, it has provided extraordinary returns — in excess of 16 -18 per cent compounded. The other options you have are funds that invest in blue-chip stocks, mid- and small-cap stocks, and sector-specific stocks. A mere Rs 5,000 invested per year over a 25-year period is likely to grow into a corpus size of Rs 15 million. I do not think the issue is being risk averse; it is simply inexperience. Over time, as your corpus size grows, your confidence will improve dramatically.

I am a pilot having a salary of Rs 25 lakh a year, which will rise by Rs 10 lakh per year for the next three years, and then grow at the rate of 2-4 per cent a year. I am 27 and planning to get married by the end of this year. My current expense is Rs 40,000, which will grow to around Rs 60,000 after marriage. I haven’t made any investments yet. How should I go about planning my finances? 

The saying, make hay while the sun shines, applies perfectly to you. It is best to invest as much as possible while you do not have any responsibilities. So do this quickly. By the end of the year you would easily have Rs 15-16 lakh, and by the end of three years the figure will be well over a crore. Continuing to invest in the same fashion, you can become financially free by the time you are 40. All your dreams can come true. For now I would suggest that you start with a mix of bluechip and midcap equity funds. Make sure you have adequate life insurance and health insurance. 

My friend got me brochures of a scheme that promises 30 per cent return a year. Investors need to buy a holiday home property. The house is then rented out and 30 percent fixed return is promised to the buyer. Is this a scam or is it for real?

I would not call it a scam, but I think it is really difficult to get a return of 30 per cent, and that too guaranteed. There are many factors that are at play simultaneously - location, initial cost, per night rental, maintenance rate, occupancy rate, and needless to mention, the staff to monitor and administer all this. Investigate, read the fine print closely, consult a few highly cynical people, and then take your decision.

What are the different ways I can use my investment to supplement my income in the future, for the rest of my life?

There are multiple ways in which you can supplement your income. Most investments have an auto payout option, such as quarterly or half-yearly interest or dividend income. Mutual funds have a systematic withdrawal plan in which the investor can determine the amount of inflow required, based on the expected return of the fund. Further, if you have stocks, they will produce dividends. If you have mutual funds, you can engineer your payout. Bonds, fixed deposits and annuities also provide regular interest income. You can also earn rental from real estate properties.


The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in


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