Use mutual fund proceeds for children’s education

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I am 46 years old and will retire at 60. My wife is a home-maker. My daughter is 12 years old, while my son is 7.

I draw a net salary of Rs 90,000. My monthly expenditure including rent is Rs 30,000. My savings: RD - Rs 25,000, PF - Rs 9,500 and SIPs of mutual funds - Rs 20,000. The current value of my investments in MFs is Rs 8 lakh. I have fixed deposits of Rs 10 lakh. My other assets are a house worth Rs 25 lakh and a plot worth Rs 7 lakh. I have Rs 50,000 in a PPF account which was invested 15 years back. I am planning to buy a house next year for Rs 60 lakh after selling my flat. The EMI will be Rs 25,000. My family is covered by a group medical policy. My monthly surplus is Rs 15,000.

For my daughter’s higher education, I need Rs 20 lakh in 2017 and Rs 30 lakh for my son’s education.

The current balance in my PF account is Rs 16 lakh and at retirement I am eligible for gratuity of Rs 10 lakh. How much do I need to save for my retirement since I have no pension benefits?Do I need to change the current investment strategy?

— K.V. Sundar

Most of the schemes in your portfolio complement one another. Running 12 SIPs will not mitigate the risk profile of your portfolio nor will the holdings increase overall returns. Invest in not more than two schemes each of large- ,mid- and multi-cap funds. Allocate 5-10 per cent of the portfolio to Gold ETF units required for your daughter’s marriage in equal instalments over the next 10 years.


Utilise the current MF portfolio. If the current value of Rs 8 lakh grows at the rate of 15 per cent, it will be Rs 16 lakh in 2017.

For the shortfall save Rs 4,800 a month for five years and the investment should earn a return of 12 per cent. For your son’s education you ought to save a sum of Rs 13,050 for the next 120 months.


The present annual living cost of Rs 2.4 lakh will be Rs 6.19 lakh after 14 years, if inflated at 7 per cent. At retirement, you should have a corpus of Rs 1.11 crore.

If the current and future PF accumulations grow at 8.5 per cent annually, at retirement the balance will be Rs 1.34 crore. Do restrict your home loan to Rs 40 lakh to ensure that you have sufficient surplus to save for other goals. Utilise the FDs and RD together to reduce the loan component.

Buy a term cover for Rs 1 crore and take a medical insurance policy at least four years before your retirement.

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(This article was published on November 17, 2012)
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