I am 25, and am earning ₹70,000 per month. I am trying to build a portfolio with ₹50,000 per month in the initial years of my job. How much money should I invest, and where? Also, should I opt for life insurance now or can I do it later?
—Name withheld on request
Answer by Harshad Chetanwala, founder, MyWealthGrowth.com
First of all, congratulations on your new job. Your plans to invest ₹50,000 out of the income of ₹70,000 is very encouraging. As you are in the initial stage of your investment journey, you should first build a reasonable contingency fund for yourself. The contingency fund can be around six to nine months of your monthly expenses and this money can be parked in a fixed deposit of your bank or liquid mutual funds. This contingency fund should be always available for you and only be used in case of an emergency. Along with building your contingency fund, you should try to identify and evaluate financial objectives that can come up in the near-, mid- or long-term based on your needs. Your near- and mid-term goals could be buying a vehicle, creating a downpayment for a new home, pursuing further studies, etc. Whereas a long-term goal could be wealth creation. Once you decide on these goals, working on the investment plan can be much easier and will be result-oriented for you. You can invest in a blend of low duration, corporate bond funds and banking and PSU debt funds for your short- to mid-term objectives depending on their time horizon. From a wealth creation perspective, you can invest in equity mutual funds through SIPs. You can consider investing in large cap, large & mid cap and flexicap funds to begin. Here are some funds in which you can do your SIPs for wealth creation.
UTI Nifty Index Fund–20% of SIP
Canara Robeco Bluechip Fund–20% of SIP
Mirae Asset Large Cap Fund–20% of SIP
Parag Parikh Flexicap Fund–20% of SIP
UTI Flexicap Fund–20% of SIP
Your question on insurance is equally important and relevant as well. The purpose of life insurance is to replace earning capacity of a person. Everyone who earns an income should have life insurance. One of the best ways to calculate life insurance is to use the income replacement method where you consider an annual growth rate in your income up to the retirement age. If we consider an average 8% increase in your annual income every year and assume you would like to work till the age of 55 then you can consider a term life insurance of ₹1 crore to ₹1.25 crore at present. Also if you go for term insurance at a young age the overall premium will be quite economical.
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