Don’t let loans hit your SIPs

I am 23. My monthly salary is Rs 40,000 and I am left with Rs 25,000 as surplus. I invest in both EPF and VPF. I am planning to take a term insurance policy for Rs 1 crore. I intend to invest in some fixed deposits. Should I let some cash sit idle in my savings account or should I opt for sweep facility to take care of liquidity? After deciding on the above, I want around 5 per cent of my portfolio to be invested in gold ETFs. I am planning to book a flat in Delhi by next year. I want to start SIPs in mutual funds. Should I consider only equity funds or balanced and debt funds as well?— Radhika Gupta

You have already gotten several important steps right in the process of investing.

By managing a fairly high level of surplus in relation to your salary, you have given yourself the room to manoeuvre across asset classes.

First, by enhancing your EPF with VPF, you have made a safe venture into debt, which will also give you tax benefits. Taking a term insurance policy early on is another good move, which will cover future risks and will help protect goals. These will also take care of tax needs, at present. You can also consider starting a PPF account, which is an excellent debt investment and gives tax exemption as well.

Coming to how much should be left lying in your savings bank account, generally, you must park the equivalent of six months’ salary. Of course this is not a hard-and-fast rule, especially if you have other means to support yourself. Going for a sweep, too, is a good idea, as the account would still be fairly liquid.

Given that you already have sufficient debt investment, you can consider taking greater exposure to equity through mutual funds. As you are fairly young, you can afford to have reasonable risk appetite.

At your age, you can invest 60-75 per cent of your portfolio in equity. But if you cannot, you can consider lower equity and higher debt in the form of longer-tenure bank fixed deposits that have attractive interest rates currently.

Coming to your query on gold ETFs, you can consider Goldman Sachs BeES and UTI Gold ETF. Alternatively, you can also invest in gold via Reliance Gold Savings fund. As for booking a flat next year, you cannot rely on gold or equities to build a sizeable corpus in the short term. Both are subject to high volatility, especially over a short period of one year. You will have to dig into your existing savings to make your down payment.

Also remember, if you start paying EMIs, your surplus available for investments will considerably come down. Try to maintain a surplus of, say, Rs 10,000 at least even after paying your EMI. If not, try to postpone your plan for a couple of years, until you can afford to pay an EMI without cutting down on investments.

If you wish to invest in mutual funds for the long term, you can start parking Rs 7,500 in large-cap, multi-cap and balanced funds.

You can consider investing Rs 2,500 each in Franklin India Bluechip, Canara Robeco Equity Diversified and HDFC Balanced. Ideally you must invest in SIPs for seven to 10 years for you to be able to beat inflation and meet financial goals. As your salary and surplus increase, invest more in mutual funds by adding a few more schemes.

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