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Ramalingam Kalirajan8626 Answers |Ask - Follow
Mutual Funds, Financial Planning Expert - Answered on May 14, 2025
Asked on - May 14, 2025
I am 42 yrs old ,married with 2 sons of age 4 yrs and 1 yrs. I am an engineer and worked in 2 African countries for 2 yrs. I have FD of 20 lakhs. Can u suggest whether I should continue my FD or invest in any kind for my future expenses. I am currently working in India having income of 16 lacs per annum and income tax deduction of 90000 per annum and I don't have any sort of LIC policy or investment. Please suggest how to move forward with my FD, income tax and savings for my future.
Ans: You are 42, married, with two young sons. You have a stable income of Rs. 16 lakhs per annum and Rs. 20 lakhs in fixed deposits. Since you have no other investments or insurance, this is the right time to take a 360-degree approach to secure your family’s future and build wealth.
Let’s go step-by-step.
1. Emergency Fund Must Come First
Keep at least 6 months of expenses as emergency fund.
This gives you safety if income stops suddenly.
In your case, Rs. 2.5 to 3 lakhs is a good start.
Park this in a sweep-in FD or liquid fund for better liquidity and returns.
Do not mix emergency fund with long-term investments.
2. Use Fixed Deposit Smartly
Right now, your FD is the only investment.
FD interest is taxable fully as per your slab.
In your case, 30% tax eats into FD returns.
Instead of keeping full Rs. 20 lakhs in FD, divide it wisely.
Keep 3 lakhs for emergency.
Shift the rest to long-term growth options gradually.
Use a phased withdrawal strategy.
Don’t break the FD all at once.
Plan monthly STPs (Systematic Transfer Plans) from FD to mutual funds.
This reduces market risk and avoids timing mistakes.
3. Tax Saving Options That Also Build Wealth
You have Rs. 90,000 tax deduction.
But your total tax benefit can go up to Rs. 1.5 lakhs under 80C.
You are not using the full limit.
This can be corrected easily.
Choose Public Provident Fund (PPF) for guaranteed tax-free corpus.
Lock-in is 15 years.
You can open it in your name or spouse’s name.
Invest Rs. 60,000 to Rs. 80,000 per year here.
Balance 80C can go into ELSS (tax-saving mutual funds).
These have 3-year lock-in and good long-term returns.
PPF gives safety, ELSS gives growth.
This combo balances your risk well.
4. Protecting Family Comes Next
No life insurance right now is risky.
With two small kids, protection is vital.
Buy a term insurance of minimum Rs. 1 crore immediately.
Term plan gives large cover at low cost.
Don’t mix insurance with investment.
No LIC endowment, no ULIP.
Only pure term cover.
Take health insurance of at least Rs. 10 to Rs. 15 lakhs.
Check if your employer gives full family cover.
Even then, take your own policy outside employer plan.
If you change job, employer cover may go.
Start own health cover now to avoid issues later.
5. Starting Investments Systematically
Your FD can act as seed capital.
SIP is the best tool to start investing.
Begin with Rs. 20,000 to Rs. 30,000 monthly.
Diversify across mutual fund types.
Don’t invest full money in small caps.
Use a good mix of large, mid, small and hybrid.
Flexi cap fund gives freedom to move between segments.
Contra fund gives contrarian growth approach.
Avoid index funds as they don’t beat markets in all cycles.
Actively managed funds can give better alpha over long term.
Let a Certified Financial Planner help you choose.
Investing through MFD with CFP ensures tracking and rebalancing.
Regular funds offer better service and guidance than direct plans.
In direct, no expert supports your journey.
Saving Rs. 500 in expense ratio can lose you lakhs in poor decisions.
6. Plan for Your Sons’ Education
Your sons are 4 and 1.
You have around 14 to 17 years to plan.
This is long enough to use equity.
Open a separate SIP for their education.
Start with Rs. 5,000 to Rs. 10,000 per child.
Increase every year as income grows.
This creates a dedicated, untouched fund for higher education.
7. Retirement Planning Should Start Now
You are 42.
15 to 18 years left for retirement.
Don’t wait till late 40s.
Create separate retirement SIP.
Start with Rs. 15,000 monthly.
Use mix of equity, hybrid and NPS.
NPS gives extra tax benefit under Section 80CCD(1B).
Up to Rs. 50,000 extra deduction.
Tier-1 NPS has lock-in till 60 but helps build discipline.
Don’t depend only on PF or pension.
Use mutual funds for wealth creation and flexibility.
Use NPS for long-term compounding and tax benefits.
8. Other Useful Suggestions
Track your expenses for 3 months.
This helps understand your surplus clearly.
Don’t keep credit card dues unpaid.
Pay full bill every month.
Keep 2 to 3 months’ expenses in savings account.
Review investments once a year.
Increase SIPs when you get hike or bonus.
Don’t stop SIPs if market falls.
That’s the time wealth gets created.
Don't fall for quick return schemes.
Follow a goal-based approach.
For every goal, assign an investment bucket.
No LIC policy means you are free to invest smarter.
Avoid endowment and ULIP plans always.
Only pure term cover and mutual funds.
9. Understanding Taxation of Mutual Funds
Equity mutual fund gains up to Rs. 1.25 lakhs are tax free.
Above Rs. 1.25 lakhs, LTCG taxed at 12.5%.
STCG on equity funds taxed at 20%.
Debt mutual funds gains taxed as per slab.
FD interest fully taxable as per slab.
Mutual funds are more tax-efficient than FD.
This makes them better for long-term wealth building.
Finally
You have good income and no bad loans.
You can save more than most families.
FD should not be your only option.
Build a mix of safety, insurance, tax saving, and long-term growth.
Start small, but stay consistent.
With the right plan, you can meet all family goals easily.
Take help from a Certified Financial Planner for customised planning.
Always follow long-term discipline over short-term greed.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
(more)
Let’s go step-by-step.
1. Emergency Fund Must Come First
Keep at least 6 months of expenses as emergency fund.
This gives you safety if income stops suddenly.
In your case, Rs. 2.5 to 3 lakhs is a good start.
Park this in a sweep-in FD or liquid fund for better liquidity and returns.
Do not mix emergency fund with long-term investments.
2. Use Fixed Deposit Smartly
Right now, your FD is the only investment.
FD interest is taxable fully as per your slab.
In your case, 30% tax eats into FD returns.
Instead of keeping full Rs. 20 lakhs in FD, divide it wisely.
Keep 3 lakhs for emergency.
Shift the rest to long-term growth options gradually.
Use a phased withdrawal strategy.
Don’t break the FD all at once.
Plan monthly STPs (Systematic Transfer Plans) from FD to mutual funds.
This reduces market risk and avoids timing mistakes.
3. Tax Saving Options That Also Build Wealth
You have Rs. 90,000 tax deduction.
But your total tax benefit can go up to Rs. 1.5 lakhs under 80C.
You are not using the full limit.
This can be corrected easily.
Choose Public Provident Fund (PPF) for guaranteed tax-free corpus.
Lock-in is 15 years.
You can open it in your name or spouse’s name.
Invest Rs. 60,000 to Rs. 80,000 per year here.
Balance 80C can go into ELSS (tax-saving mutual funds).
These have 3-year lock-in and good long-term returns.
PPF gives safety, ELSS gives growth.
This combo balances your risk well.
4. Protecting Family Comes Next
No life insurance right now is risky.
With two small kids, protection is vital.
Buy a term insurance of minimum Rs. 1 crore immediately.
Term plan gives large cover at low cost.
Don’t mix insurance with investment.
No LIC endowment, no ULIP.
Only pure term cover.
Take health insurance of at least Rs. 10 to Rs. 15 lakhs.
Check if your employer gives full family cover.
Even then, take your own policy outside employer plan.
If you change job, employer cover may go.
Start own health cover now to avoid issues later.
5. Starting Investments Systematically
Your FD can act as seed capital.
SIP is the best tool to start investing.
Begin with Rs. 20,000 to Rs. 30,000 monthly.
Diversify across mutual fund types.
Don’t invest full money in small caps.
Use a good mix of large, mid, small and hybrid.
Flexi cap fund gives freedom to move between segments.
Contra fund gives contrarian growth approach.
Avoid index funds as they don’t beat markets in all cycles.
Actively managed funds can give better alpha over long term.
Let a Certified Financial Planner help you choose.
Investing through MFD with CFP ensures tracking and rebalancing.
Regular funds offer better service and guidance than direct plans.
In direct, no expert supports your journey.
Saving Rs. 500 in expense ratio can lose you lakhs in poor decisions.
6. Plan for Your Sons’ Education
Your sons are 4 and 1.
You have around 14 to 17 years to plan.
This is long enough to use equity.
Open a separate SIP for their education.
Start with Rs. 5,000 to Rs. 10,000 per child.
Increase every year as income grows.
This creates a dedicated, untouched fund for higher education.
7. Retirement Planning Should Start Now
You are 42.
15 to 18 years left for retirement.
Don’t wait till late 40s.
Create separate retirement SIP.
Start with Rs. 15,000 monthly.
Use mix of equity, hybrid and NPS.
NPS gives extra tax benefit under Section 80CCD(1B).
Up to Rs. 50,000 extra deduction.
Tier-1 NPS has lock-in till 60 but helps build discipline.
Don’t depend only on PF or pension.
Use mutual funds for wealth creation and flexibility.
Use NPS for long-term compounding and tax benefits.
8. Other Useful Suggestions
Track your expenses for 3 months.
This helps understand your surplus clearly.
Don’t keep credit card dues unpaid.
Pay full bill every month.
Keep 2 to 3 months’ expenses in savings account.
Review investments once a year.
Increase SIPs when you get hike or bonus.
Don’t stop SIPs if market falls.
That’s the time wealth gets created.
Don't fall for quick return schemes.
Follow a goal-based approach.
For every goal, assign an investment bucket.
No LIC policy means you are free to invest smarter.
Avoid endowment and ULIP plans always.
Only pure term cover and mutual funds.
9. Understanding Taxation of Mutual Funds
Equity mutual fund gains up to Rs. 1.25 lakhs are tax free.
Above Rs. 1.25 lakhs, LTCG taxed at 12.5%.
STCG on equity funds taxed at 20%.
Debt mutual funds gains taxed as per slab.
FD interest fully taxable as per slab.
Mutual funds are more tax-efficient than FD.
This makes them better for long-term wealth building.
Finally
You have good income and no bad loans.
You can save more than most families.
FD should not be your only option.
Build a mix of safety, insurance, tax saving, and long-term growth.
Start small, but stay consistent.
With the right plan, you can meet all family goals easily.
Take help from a Certified Financial Planner for customised planning.
Always follow long-term discipline over short-term greed.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment