Hi Sir, I am 31 years old and having 15 months old kid, working in IT earning 1.75L in hand monthly. I brought a flat with 60L bank loan, paying emi of around 52k monthly. I am planning to complete that before 2030 by doing 50k monthly prepayment. I am supporting my parents by sending 20 k monthly. I have a term insurance of 1 cr. I need an advice on building Emergency fund (thinking of around 6 L, 2L saved so far in debt fund), retirement corpus of 12 cr at my 45 age, how can I plan for the taxation better. Kindly share your thoughts. Thanks in advance.

Ans: Building a robust financial plan is key to achieving your goals. Here’s a detailed approach:

Emergency Fund Planning
You aim to build an emergency fund of Rs. 6 lakh.

You’ve already saved Rs. 2 lakh in a debt fund.

Keep it up by setting aside an additional Rs. 4 lakh.

Prioritise this fund for unforeseen expenses like medical emergencies or job loss.

Save at least Rs. 20,000 monthly towards this goal.

In ten months, your emergency fund will be complete.

An emergency fund should cover at least six months of living expenses.

It’s good that you’re already working towards this.

Loan Prepayment Strategy
You have a 60L home loan with an EMI of Rs. 52k.

Planning to prepay Rs. 50k monthly is smart.

This will reduce your interest burden significantly.

Prepaying helps you save on interest and shorten the loan tenure.

By 2030, you can be debt-free, provided you stick to this plan.

Keep an eye on prepayment charges, if any, from your bank.

Reducing debt early gives you financial freedom faster.

Supporting Parents
Supporting your parents with Rs. 20k monthly is commendable.

This shows your sense of responsibility and family values.

Ensure this expense is factored into your budget consistently.

Consider discussing with your parents if they need any additional financial help.

This way, you can plan your finances better without compromising your goals.

Retirement Planning
You aim to build a retirement corpus of Rs. 12 crore by age 45.

Given your current age of 31, you have 14 years to achieve this.

Let’s break it down into a clear strategy:

1. Systematic Investment Plans (SIPs):

You should invest in diversified mutual funds.

SIPs are a disciplined way to invest regularly.

Choose equity mutual funds for higher returns over long periods.

Your current income allows you to invest aggressively.

Start with an amount you’re comfortable with and increase it annually.

2. Equity Mutual Funds:

Equity mutual funds have the potential for higher returns.

Actively managed funds are preferable over index funds.

Actively managed funds can outperform indices in volatile markets.

Certified Financial Planners (CFPs) can guide you on selecting the right funds.

3. Regular vs. Direct Funds:

Invest through regular funds with a certified mutual fund distributor.

Regular funds come with expert advice and periodic reviews.

Direct funds may seem cost-effective but lack professional guidance.

A CFP can help optimise your portfolio and provide timely adjustments.

4. Portfolio Diversification:

Diversify your investments across different asset classes.

Include equity, debt, and gold for a balanced portfolio.

This reduces risk and enhances returns over time.

Tax Planning
Effective tax planning can save you a significant amount.

Here are some strategies to consider:

1. Tax-Saving Investments:

Invest in tax-saving instruments under Section 80C.

Options include Equity-Linked Savings Schemes (ELSS), PPF, and NSC.

These investments can reduce your taxable income by up to Rs. 1.5 lakh annually.

2. Health Insurance:

Premiums paid for health insurance qualify for tax deductions under Section 80D.

You can claim up to Rs. 25,000 for yourself, spouse, and children.

Additionally, you can claim Rs. 50,000 for parents if they are senior citizens.

3. Home Loan Interest:

Interest paid on your home loan is eligible for tax deduction under Section 24(b).

You can claim up to Rs. 2 lakh annually.

Principal repayment qualifies for deduction under Section 80C.

4. National Pension System (NPS):

Investing in NPS provides an additional tax deduction of Rs. 50,000 under Section 80CCD(1B).

This is over and above the Rs. 1.5 lakh limit under Section 80C.

5. HRA and LTA:

If you’re living in a rented house, claim House Rent Allowance (HRA).

Leave Travel Allowance (LTA) can be claimed for travel expenses.

These exemptions reduce your taxable income significantly.

Insurance Coverage
You have a term insurance of Rs. 1 crore.

This is good, but review it periodically to ensure it meets your needs.

Consider increasing coverage as your responsibilities grow.

Life insurance is crucial for securing your family’s future.

Child’s Future
Your child is 15 months old now.

Start saving for their education and future needs early.

Consider investing in child-specific investment plans or mutual funds.

These investments can grow significantly over time.

Education costs are rising, so planning ahead is wise.

Final Insights
You have a clear goal and are on the right track.

Building an emergency fund is crucial, and you’re almost there.

Prepaying your loan is a smart move to reduce your debt faster.

Supporting your parents shows your strong family values.

Retirement planning requires disciplined investing in diversified mutual funds.

Tax planning can save you money and optimise your investments.

Review your insurance coverage regularly and plan for your child’s future early.

Keep monitoring and adjusting your financial plan as needed.

Consistency and discipline in saving and investing will help you achieve your goals.

Remember, consulting with a Certified Financial Planner can provide personalised advice.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in