I was recently quoted in Economic Times WEALTH (22-28 January 2024) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances.
The exact question and the answer are marked in the below image –
Here is the text version of the query and the reply –
Q – I am 33 years old with a monthly income of Rs 44,000. I live in my own home. We are planning for a child this year. I invest Rs 15,000 per month in mutual funds (combination of flexicaps, midcaps and debt funds) and Rs 5,000 in stocks. I also invest Rs 26,000 per year in life insurance and health insurance. I want to retire at 60 with a decent corpus but before that I want to secure my child’s needs. How should I proceed?
A – From your monthly income of Rs 44,000, you are already saving Rs 20,000 across mutual funds and stocks. Also, you might be doing additional investments via salary deductions towards EPF (details unavailable). So, you already maintain a fairly high savings rate and that bodes well for future.
Your 2 major goals are your retirement and your (future) child’s higher education. Assuming you wish to provide a higher education to your child which costs Rs 20 lakh today (assumed), in about 18 years’ time, the same will cost about Rs 94 lakh to Rs 1.12 Cr for 9-10% inflation. And for that, if you invest monthly with 75:25 Equity:Debt allocation, you would need to start with Rs 11-13,500 per month and increase this monthly amount by 5% every year. In case starting with this amount isn’t possible, then you can start smaller and then increase your investment amount in future based on salary hikes.
To calculate retirement corpus requirements, details about PF/NPS, existing amount in mutual funds, etc., information about how much of current expenses will be applicable post-retirement, are required. But the same are unavailable. Nevertheless, you are already doing Rs 15,000 in mutual funds and another Rs 5000 in direct equities. So that should be continued in any case and for now, are best earmarked for retirement.
Also, you can also channelize a major part of your annual incentives towards your portfolio if you don’t need it for other expenses or family requirements.
It is not known if you have some surplus in savings account or FD, but I would advise you set aside some money as emergency fund. You can also earmark the debt fund you have for this so that gradually, you have at least about 6-9 months’ worth of expenses saved up in this contingency buffer.