I am 28 and work in an IT firm. My wife, 25, is a home-maker, we have a one-year-old daughter. My parents (55 and 52) are my dependents. Should I buy a flat in my hometown or in Chennai?

I invest ₹25,000 every month in a chit fund, which closes next year. I have ₹18 lakh worth endowment and ₹8 lakh worth money-back policy. I invested ₹1.8 lakh in equities, and ₹1 lakh in ELSS in 2008 after which I have not made any additional investments. Should I discontinue the chit fund investment?

Kumar

Before investing in realty, decide where you wish to settle down, post-retirement. It does not make sense to buy a house if you have to frequently shift your base. Buy a plot using your savings account balance if you intend to settle down in your hometown post retirement. If you buy a flat now and rent it, you need to spend on re-furbishing it post-retirement. Go for a gated community plot that is at least two times the size of a flat, in an upcoming location. Should the land price appreciate and equal the cost of construction, sell the plot and buy a flat. Live in a rented accommodation until then.

The dividend return in a registered chit fund may be around 11 per cent (7.7 per cent post-tax). Bid for the chit once the dividend falls below 10 per cent and avoid chit funds in future. To save ₹31.5 lakh for your child’s education, assuming 7 per cent annual inflation for the next 17 years, save ₹4,780 every month. The investment should earn 12 per cent annual returns. You will need ₹1.42 crore for your daughter’s marriage 23 years from now, assuming 7 per cent annual inflation. If you invest ₹9,650 every month in an asset class that earns 12 per cent annually, you reach the target.

It is best not to combine insurance and investment. Hence, buy a term cover for ₹1.5 crore. Follow an asset allocation strategy of 60:30:10 in equity, debt and gold.

(The writer is a financial planner and founder, >myassetsconsolidation.com . Send your queries to >blinefp@gmail.com )

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