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I am 22 and work in the private sector. I need to invest ₹90,000 annually to save tax. Should I invest in PPF or ELSS?
Is it alright to decide on other financial goals after marriage?
I don’t have any insurance cover as yet. What is the amount you would recommend? Also, suggest an investment strategy for my surplus.
Akanksha Gupta
Investment products are uniquely designed to meet the requirements of varied set of investors.
Hence, it may not be correct to compare these asset classes. Asset allocation, depending on individual’s risk appetite, is the best investment strategy.
To avail of tax benefits, you can consider a mix of equity and debt products. While PPF and VPF offer steady returns, equity linked savings scheme are better placed to generate inflation-beating.
So, invest ₹30,000 every year each in PPF, VPF and ELSS. Increasing allocation towards VPF can come handy to make the down payment, whenever you plan to buy a house.
Most young investors take on long-term liabilities such as housing loan, right at the start of their career. This not only reduces the surplus available for investment but also the flexibility to save for other goals.
Your decision to postpone long-term liabilities, such as property, until marriage is right for two reasons. First, should you move to another city after marriage, managing the property will be a challenge.
Also, this can hamper your borrowing capacity. Second, rental yields may not be adequate enough to meet your monthly EMI commitments.
Since you are young, you can allocate a larger share of your surplus towards high-risk high-return asset classes such as equities.
Invest 70 per cent of your surplus in equities and the balance in debt.
Insurance is the best way to manage risks. It is better to buy a term insurance when you are young, as the premiums are lower then. To start with, you can buy a term cover equivalent to five-six times your gross income. This can be increased as and when you take on liability.
Having an additional healthy policy, apart from the one provided by your employer, will be useful whenever you change your job.
The writer is a financial planner and founder of myassetsconsolidation.com.Send your queries to blinefp@gmail.com
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