CONTRIBUTION towards insurance and PPF are fine but if you want to create wealth, it's time to change your outlook. Certified Financial Planner, Kartik Jhaveri tells reader Dheeraj where to invest, why and how much he is likely to make.
I AM 40 years of age with a 10-year old daughter. I work with a private company in Jaipur and earn an annual salary of Rs 4 lakh. I also have a loan outstanding of Rs 6 lakh at floating rate.
My expenses are as follows:
Household expenses = Rs 1.2 lakh per annum
EMI on housing loan = Rs 90,000 per annum
My investments are as follows:
LIC, PPF = Rs 1 lakh per annum
My fears:
I am apprehensive about investing in shares
I have no other source of income
My doubts:
Where should I invest in the next 10 to 15 years to accumulate sizeable savings after my retirement?
-- Dheeraj Chauhan, Jaipur
You cannot compromise on your housing loan or your household expenses. This leaves us with your investments towards life insurance (LIC) and Public Provident Fund (PPF), where restructuring is possible. I believe you are contributing far too much into LIC and PPF than what is required, given your income and other commitments.
While we do not know exactly how much of Rs 1 lakh per annum you are paying towards PPF and how much towards LIC, let us make these two cases:
Case 1:
If you are paying more towards PPF
Your situation can be salvaged. PPF is a good investment option but it gives only 8 per cent returns per annum. First step towards accumulating wealth would be redesigning your strategy - you could potentially generate much more given that you have your retirement goal in perspective.
My recommendations
1. Stop contributions to all 80C investments except your LIC
2. Contribute Rs 1,000 per annum to keep your PPF account active
3. Use the balance money (of Rs 1 lakh after deducting LIC premia, Rs 1,000 of PPF and the principal payment of your loan) to invest in Equity Linked Saving Schemes (ELSS) of mutual funds. You will have a 3 year lock-in, but you will be able to reap good returns in 5 to 7 years.
Case 2:
If you are contributing too much into insurance
Consider making your policies paid up (if you have already completed 3 years in your policies). And, if you have paid for less than 3 years, consider paying till you complete 3 years to even consider lapsing it. Do consult an expert before doing this because other variables like amount of insurance cover and amount of premium would come into play.
At your age, a life insurance policy of Rs 10 lakh sum assured should cost you no more than Rs 5,000 to Rs 6,000 per annum. I refer to a term life policy as that is ideal. Use this number as a benchmark to evaluate if you are doing the right thing. Your ideal level of insurance should be around Rs 30 lakh.
My recommendations:
Consider alternate assets like bullion, real estate, etc at a later stage in life.
Next page: Where should you invest?
Read:
Rs 5,500 per month = Rs 12 lakh in 11 years