Page 47 - mutual-fund-insight - Mar 2021_Neat

INVEST IN EQUITY HOW ABOUT AN EDUCATION LOAN?

z For wealth creation, it is recommended to invest in z Also consider taking an
equities for long-term goals, which are at least five years education loan to partly finance
away. your child’s higher education.
z Ashish may use flexi-cap mutual funds for this purpose z Since an education loan is
or even aggressive hybrid funds if he gets anxious about paid back by the child when he/
market movements. Aggressive hybrid funds invest about she starts working, this helps
20–35 per cent of the portfolio in fixed income to cushion your child become more
the impact of volatility, without compromising much on responsible and appreciate the
long-term returns. importance of money.
z It is not important to invest
in child-specific investment DON’T IGNORE YOUR OWN RETIREMENT
products as they do not offer
any additional advantage. It z Ashish’s mandatory provident-fund deductions
is a marketing gimmick to may not be enough to accumulate a sufficient
portray them as an retirement corpus.
investment product for a
crucial goal. Any investment z Given the current expenditure and an
avenue can be used for this goal as assumption that Ashish would stop earning at the
long as it suits your investment horizon and risk age of 60, he would need a retirement corpus of
appetite. The underlying investment is what you little more than `4 crore to maintain the same
should look at. lifestyle at an inflation-adjusted level up
to the age of 85. But his mandatory
z By investing in some child-specific plans, Ashish may EPF contributions will fetch him
get a tax deduction under Section 80C. But even for that around `1.73 crore only (assuming an
purpose, it is better to invest in tax-saving equity mutual average return of 8 per cent and an
funds. annual increase of 10 per cent in
z Traditional saving avenues like the Public Provident EPF contributions). An SIP
Fund (PPF) and Sukanya Samriddhi Yojana (SSY) invest of about `12,000 is required
only in fixed-income avenues and are likely to generate to meet the deficit
less returns over the long term as compared to equity (assuming 12 per cent
mutual funds. Both these products also score less on annual return, with
liquidity. Further, SSY is meant only for the girl child. contributions growing at 10
per cent per annum).
z However, one must start redeeming systematically from
equities at least 18 months to two years before the goal to z Ashish should, therefore, continue to invest as
avoid any negative surprises, should the market fall. much as possible in equities and if required,
encourage his daughter to partly finance the
education cost through a loan.

DON’T FORGET THESE

z Maintain an emergency corpus equivalent
to at least six-month expenses (including EMIs)
in a combination of sweep-in FD and liquid funds.
z Buy adequate health insurance for all your
family members, which should be independent
of the one provided by the employer.
z Life insurance is a must if you have financial
dependents. It should be sufficient to take care of
their living expenses and any other non-negotiable
goals in your absence. For this purpose, consider
only pure term plans. Traditional insurance
schemes that combine insurance and
investment provide neither adequately.

Mutual Fund Insight March 2021 43
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