Financial planning: Some useful tips

I want to buy a house, for which I will have to opt for a home loan. My gross salary is Rs 19,000 a month and my wife's is Rs 10,000. Unfortunately, my mother does not keep well, and I can face a medical emergency any time. How should I plan for the house?

First, you should set aside a contingency fund for the next six months for any medical emergency. After this, save at least Rs 10,000 a month for your goal of purchasing a house. You could take a home loan of Rs 10 lakh after a year. The equated monthly instalment will be in the range of Rs 10,000.

I am 42 years and earn Rs 45,000 a month. I have been investing Rs 5,000 every month in the following stocks for the last one year - Reliance Industries, L&T, Jindal Steel & Power, NMDC and Punj Lloyd. My investment horizon is 10 years. Am I on the right track? Keeping the same timeframe, I plan to invest Rs 5,000 via systematic investment plans (SIPs) in such mutual funds as Reliance Growth Fund, HDFC Top 200, HDFC Equity, Sundaram BNP Paribas Select Midcap and ICICI Dynamic Fund. Which of these two options can give better capital appreciation without loss of capital?

It is good you have invested in the equity market with a long-term horizon of 10 years. Most equity stocks that you have are largecap stocks. Also, the funds that you have indicated are diversified equity funds.

Before we discuss which is a better option, one needs to understand the difference in risk and return characteristics of both these categories of equity instruments. An investment in direct equity is more risky than in a mutual fund. This is because a mutual fund invests in 50-plus equity shares, and that results in systematic diversification of risk.

A systematic investment of Rs 10,000 a month over 10 years is an aggressive asset allocation of equity and debt in the ratio of 80:20. It will result in a corpus of Rs 23,15,000, assuming 14 per cent return on equity and 7.5 per cent on debt.

We suggest you dedicate this amount towards a well-defined goal which needs to be articulated. All the funds mentioned are well-rated funds.

I am 39 years and my monthly saving is Rs 80,000. My monthly investments are: Mutual funds = Rs 15,000, insurance = Rs 15,000 and PPF = Rs 5,000. I am still left with a surplus of Rs 45,000 every month and want your advice to invest it. My children are four and 11 years and my immediate priority is their education. I have repaid my home loan.

Since you have not mentioned whether you want to fund your children's undergraduate or postgraduate studies, we have planned for their postgraduation where maximum cash outflow is required.

We have assumed the cost of a two-year postgraduate (PG) course as Rs 15 lakh in present value, rising at an inflation rate of six per cent. If your child aged 11 years goes for a PG course at 22, the inflated value of his education cost will be Rs 26,86,000. To achieve this goal, you need to invest Rs 13,700 a month in an SIP.

And, if your four-year-old child goes for a PG course at 22 years, the inflated value of his education will be Rs 40,39,000. For this, you need to invest Rs 14,500 monthly in an SIP.

You must invest in an aggressive portfolio of equity funds and debt funds in the ratio of 80:20. This strategy should become more conservative as and when the goal approaches.