Financial Planning . Diversification and asset allocation hold the key

There is no information about the existing investments. However, since you are young and new to investments, we can ignore your existing investments.

Being a new investor, there are a few things you must keep in mind. Diversification and asset allocation are extremely important. It is easy to load your portfolio with the asset class that has done well in the recent past. However, that is not a good way to build your portfolio over the long term. Adverse market movements can severely impact concentrated portfolios. Diversification will reduce risk in the portfolio.

Invest in debt products for short-term goals. Consider equity-heavy portfolios for long-term goals. For long-term goals, start with a target asset allocation. At your age, you can start with a 60:40 or 70:30 equity-debt portfolio for your long-term goals. You must also rebalance your portfolio at regular intervals. Reduce equity allocation as you move closer to the goal.

When planning for goals, do consider the impact of inflation — ₹50 lakh today is not the same as ₹50 lakh after 30 years. At inflation of 8 per cent, the purchasing power of ₹50 lakh after 30 years will be same as that of ₹5 lakh today. The impact of inflation is especially important while determining the target retirement corpus.

To begin with, you must ringfence your finances from emergencies and unplanned expenses. For this, first build up an emergency fund of about six months’ expenses in a fixed deposit or a liquid fund. Even though you have a health insurance plan of ₹5 lakh from the employer, this cover is only till retirement. Moreover, this cover will cease if you quit your job. Your new employer may not offer you the same level of coverage. You will not be covered during the break between the two jobs. Therefore, purchase a health plan for your young family. This plan will cost around ₹12,000 per annum.

You need to purchase a term insurance plan, too. You can purchase a life cover for about 15 times your annual income, i.e., about ₹1 crore. As you already have a term cover of ₹50 lakh, you can purchase an additional ₹50-lakh cover. This will cost about ₹7,200 per annum.

You need to invest about ₹47,000 per month. You can invest ₹20,000 per month, in addition to the ₹11,000 you are investing in EPF and PPF. An additional ₹1,600 per month will go towards insurance. Clearly, you are short on what you need to invest. Increase the allocation when your cashflows permit. Over the years, your income will rise and this may provide you with an opportunity to invest more. At the same time, expenses will also rise for your family. You must figure out a way to invest more.

You have a stable multi-cap fund (Franklin India Equity), a balanced fund (L&T Hybrid Equity), a large- and mid-cap (Mirae Fund) and a small-cap fund (L&T Emerging Business).

You can continue with the same funds and earmark the existing funds for your goals.

Sukanya Samriddhi is a good scheme to invest for your daughter’s education and wedding. The returns are quite high for a fixed-income product.

The EEE (exempt-exempt-exempt) tax treatment also adds to the attractiveness of the scheme. At the same time, you must understand that SSY is a debt product.

Since your daughter’s education and wedding are many years away, you must also consider equity funds for the same.

The writer is founder of PersonalFinancePlan

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