Dear readers, we had asked you to send in your personal finance queries to be answered by Basis founder and CEO Hena Mehta. Here’s the first batch of responses.
Photograph: Kind courtesy Pixabay
Vijayalakshmi: Thanks for coming forward to help us Indian women with our financial woes. So far my brother was helping me with investment and most of it has been invested in MF.
I am a single, unmarried lady, 50-year-old, unemployed since when I was 45 and not having much scope to restart career. At present, I have a corpus of Rs 1.5 crore out of which 80 per cent is invested in debt MF and remaining in bonds.
I don't know how long life is going to be and whether this corpus will suffice until my death. My worry is that I don't have a shelter which I can call my home. I am currently staying in my brother's house but I can't stay here forever. So I wanted to know if there is way or scope so that I can have a decent income to take care of present and future financial needs and at the same time invest in a home for safe and secure existence.
Also with minimalistic living, I am able to save a few thousand rupees, month-on-month. Do you have any suggestions on where I should invest this money?
Thanks for taking the time to read through and advanced thanks if you opt to reply to this query.
Hena Mehta: Hi Vijayalakshmi, thank you for your question. First of all, you seem to have saved a sizeable corpus that can be invested well to give you a regular income. I would not suggest that you invest in property because that might significantly bring down your financial liquidity and overall affect the monthly income you could possibly get. Instead:
- Consider the possibility of renting a home which will be a low-cost option than paying EMI
- Identify what amount you actually need on a year-on-year basis. It is important to understand that there is growing inflation which will make this amount higher year on year
- The money that you are saving could be invested for the longer term considering you are only 50 and life expectancy for us women is currently high at ~ 75 yrs
- It would be good if you look at building on some hobbies that could translate into income even if it’s a small amount
- At the current stage, having an 80 per cent allocation to debt, which sounds enough to keep the amount safe but may not lead to the income that you will need over the course of the next few years. Once you put down your yearly requirements it might be useful to review your equity allocation and based on the need, increase the same
- It would be of value for you to also have health insurance in place even if you have to pay a higher premium so that you don’t have to dip into your corpus if there is any health issue
Kashmira: I need your expert advice. My query is: If a HUF contributes to the PPF account of one of the minor members, then does the contribution (by HUF) get added to the parent's PPF contribution, considering his/her PAN number is present in the minor's PPF account as guardian?
Hena Mehta: No, that amount does not get added to the parent’s account. It gets added to the HUF’s account and can be claimed by the HUF under Section 80 C. This amount cannot be claimed by the guardian for her/his tax exemption purposes.
Sushma: I would like to know how to save taxes through mutual funds for a salaried person who is in the 30 per cent tax slab.
Hena Mehta: Hi Sushma, good question and glad you are thinking along these lines. Firstly, instead of FDs or RDs, debt mutual funds make better sense because of their tax treatment, especially if you earn more than Rs 10 lakh per annum.
On tax savings, when you make investments in National Savings Certificate or fixed deposits for 5 years, the interest you earn every year is taxable as per your income tax slab. Post taxes, the interest you earn may not even beat inflation.
You could consider investing in ELSS (Equity Linked Savings Schemes) of mutual fund houses which are diversified equity funds. They have a lock-in period of three years, although I would suggest staying invested for at least five years to reap the benefits since they should be long term investments. The profits on these funds are taxed at 10 per cent after profit of Rs 1 lakh so they also make sense.
Saritha: How often should I check on my investments? What’s a good rule to follow to increase my SIP amounts?
Hena Mehta: Hi Saritha. An annual check is more than enough in my opinion (in fact the less frequently you check the better). Investors tend to panic when markets go down, but for those of us who are doing long term investments, the temporary dips in the markets shouldn't affect us.
In terms of increasing SIPs and so on, setting a milestone day could be helpful for assessing whether to increase the SIP amount; for instance, your birthday, the start of the new year, a salary hike.
Mona: Does it make sense to have two insurance policies on your parents? They already have one running for the past 25 years but the cover is low and it covers them only for Rs 2 lakh for one disease. Dad is adamant on not increasing cover, so I want to cover them through my company policy. Not aware of how it works in case of two policies in case of claims.
Hena Mehta: Hi Mona, I would highly suggest that you add them to your employer's health insurance even if you have to pay a premium for it. Let's assume the cover they have is Rs 2 lakh and what you have from the employer is a family floater cover of Rs 5 lakh. In case something happens and their hospitalisation cost comes up to Rs 3.5 lakh, you can claim Rs 2 lakh from their policy and the balance from your employer or the other way around too.
Basis is a financial advisory that seeks to empower and inform the emerging investor, the Indian woman.