Hi, I currently earn 42k per month at the age of 25, no loans, I have 2 Lacs in mutual fund and around 80k in stocks. I also have a term insurance and health insurance is from company policy. I stay at parents house so no rent either, just 9-10k...

Hi, I currently earn 42k per month at the age of 25, no loans, I have 2 Lacs in mutual fund and around 80k in stocks. I also have a term insurance and health insurance is from company policy. I stay at parents house so no rent either, just 9-10k per month on an average on electric bill+ grocery that I pay. I invest 12k per month in stocks and mutual fund altogether. Am I having a right approach or should i make any emergency fund? And how and where to keep the money? I'm planning to get a health insurance for my mother and I next year.

Ans: It's commendable that you're already prioritizing investments at such a young age and have taken steps to secure insurance coverage. Your approach demonstrates financial responsibility and foresight.

Given your current financial situation, establishing an emergency fund is indeed a prudent step. An emergency fund acts as a financial safety net, providing liquidity to cover unexpected expenses like medical emergencies or job loss without disrupting your long-term investments.

As a Certified Financial Planner, I recommend setting aside at least three to six months' worth of living expenses in your emergency fund. Since your average monthly expenses are around 9-10k, aim to accumulate around 30k to 60k in your emergency fund.

You can keep your emergency fund in a high-yield savings account or a liquid mutual fund for easy accessibility and liquidity. These options offer stability and ensure your funds are readily available when needed.

Regarding health insurance for you and your mother, it's a wise decision to enhance your coverage. Evaluate various health insurance plans to find one that meets your specific needs and offers comprehensive coverage for medical expenses.

Continue with your disciplined approach towards investing in stocks and mutual funds. Allocating a portion of your monthly income towards investments ensures wealth accumulation over time. Regularly review your investment portfolio and make adjustments as needed to align with your financial goals and risk tolerance.

Overall, you're on the right track with your financial planning and investments. Keep up the good work and remain proactive in managing your finances for a secure and prosperous future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You are doing well for your age. Good to see your income, investments, and responsibility taken seriously. Managing EMIs, helping family, and building assets – that is a strong foundation.

? Income, EMIs, and Expense Summary

– Your monthly income is Rs.1.40 lakh
– Car loan EMI: Rs.24,000 (2.5 years remaining)
– Plot loan EMI: Rs.16,000 (16 months left)
– Personal loan EMI: Rs.15,000 (24 months left)
– Other EMIs: Rs.15,000 (purpose not clear – but we’ll consider it)
– Loan to brother: Rs.5 lakh (to repay in 1 year, no interest)
– Monthly expenses: Rs.20,000

So total monthly outgo (EMIs + expenses) is Rs.90,000. That leaves approx. Rs.50,000 monthly surplus.

Your loans are structured but heavy. The good part is – many are short term. That gives room for recovery and growth soon.

? Existing Assets and Investments

– Mutual funds: Rs.9 lakh
– Fixed deposit: Rs.2 lakh
– Stocks: Rs.1.5 lakh
– Term insurance of Rs.1 crore
– LIC with Rs.12,000 premium (details not shared – assuming endowment)

This is a fair start. The investment size is good considering your age and EMI pressure. You are not neglecting your future.

But some adjustments are needed to make it sharper and better aligned.

? Loan Management – Clear Priority Plan

At 29, your top priority should be clearing high-cost loans. Here's a plan:

– First, repay the Rs.5 lakh loan to your brother within 12 months as promised
– Allocate Rs.42,000 every month for 12 months for this
– This should be non-negotiable. No partial delay

Once this is done, focus on clearing the plot loan and personal loan faster. Even though they have short terms, prepaying saves interest.

Car loan is big at Rs.24,000 EMI. But since only 2.5 years are left, let it run unless there’s a windfall.

For now, don’t take any new loans. Not even for investment.

Don’t use FD or MF lump sum to prepay. Keep those for emergencies and growth. Use only surplus income.

? Emergency Fund – Build and Maintain Stability

FD of Rs.2 lakh is good. But ideally, emergency fund should be equal to 6 months of total expenses and EMIs.

In your case, total monthly outgo is Rs.90,000. So emergency reserve should be Rs.5–6 lakh minimum.

Top up your FD by Rs.3 lakh over the next 12–18 months. Or shift part of mutual funds to a liquid or ultra-short debt fund for this purpose.

This fund must not be touched for investing or spending.

? Insurance Review – Smart Protection First

Term insurance of Rs.1 crore is the right decision at your age. Well done.

Please check these:

– Policy must cover till age 60 or 65
– Premium should be regular pay, not single or limited pay
– Claim settlement ratio of the insurer should be 95% or more

Now about the LIC policy of Rs.12,000 yearly:

– If it's a traditional endowment policy, returns will be low (around 4–5%)
– These policies mix insurance and investment poorly

If the policy is older than 5 years and surrender value is more than premiums paid, consider surrendering. Invest the amount in mutual funds aligned to your goals.

If not yet 5 years, stop future premiums after minimum term and make it paid-up. Redirect that money into long-term SIPs.

Keep insurance and investment separate. That gives more clarity and better return.

? Mutual Fund Portfolio – Evaluate, Clean, and Strengthen

You already have Rs.9 lakh in mutual funds. That is excellent for your age.

But now do this:

– Review the number of funds
– Avoid overlapping schemes of the same category
– Retain only quality funds with long-term track record
– Ensure proper mix of large-cap, mid-cap, flexi-cap, and hybrid if needed

Avoid holding too many funds. 4 to 6 well-chosen funds are more than enough.

Ensure the funds are regular plans and are tracked by a qualified MFD with CFP credentials. This ensures fund review, guidance, and rebalancing when needed.

If you hold direct plans, reconsider. While it avoids commission, there’s no guidance.

Mistakes in direct funds (wrong category, poor timing, panic exit) often reduce return more than any fee saved.

Also avoid index funds or ETFs. These don’t adjust during market falls. Active funds provide better downside protection and selection flexibility.

? Stock Holdings – Control Exposure and Risk

Stocks worth Rs.1.5 lakh is okay for your age. Keep direct equity below 10–15% of your portfolio.

Do not increase exposure here unless you have deep knowledge, time, and discipline.

Avoid using stocks for short-term goals.

If you are not tracking regularly, consider shifting future equity investments to diversified equity mutual funds.

These are better managed, tax efficient, and monitored professionally.

? Monthly Surplus – Where and How to Allocate

After all expenses and EMIs, you have approx. Rs.50,000 surplus monthly. Here's how to use it wisely:

– Rs.42,000 towards loan to brother (for next 12 months)
– Rs.3,000 SIP in hybrid mutual fund (for flexibility and stability)
– Rs.5,000 SIP in large or flexi cap fund (for long-term growth)

After 12 months, when the brother’s loan ends, restructure again:

– Rs.15,000 to clear other loans faster
– Rs.10,000 increase SIP
– Rs.5,000 to FD or debt fund as emergency
– Keep Rs.10,000 for variable goals (travel, skills, etc.)

Review this distribution yearly.

? Future Goals – Plan Now, Not Later

Even though you’re not married, you must prepare now. Think 5–10 years ahead.

Likely future goals include:

– Marriage
– House furnishing or interiors
– Starting business or higher education
– Buying a second car (later)
– Retirement (yes, even from now)

Assign timelines to each goal. Begin SIPs accordingly.

Short goals (2–4 years): hybrid funds or short-term debt funds.
Long goals (5+ years): diversified equity mutual funds.

Avoid mixing timelines in one fund. Each goal should have its own basket.

Don’t invest in real estate again just for investment. Your plot purchase is enough for now. Adding more adds risk and reduces liquidity.

? Tax Planning and Structure

You have high EMIs and likely high interest paid. But you can still plan for tax efficiency.

Do these:

– Use 80C: LIC, PF, ELSS SIPs, and home loan principal
– Use 80D: medical insurance for self and parents
– Home loan interest: under 24(b) limit
– Use LTCG limit of Rs.1.25 lakh in equity mutual fund sales smartly

Always redeem mutual funds in a structured way. Avoid excess STCG which is taxed at 20%.

Take help from your MFD (with CFP credentials) to plan redemptions better.

? Review and Rebalancing – Don’t Skip This

At least once in 6 months, do a full portfolio review.

– Check fund performance
– Adjust SIPs as per changing goals
– Reduce overlapping schemes
– Rebalance equity and debt if asset mix shifts

If equity goes above 75% due to rise in market, shift some gains to hybrid or debt.

This avoids future shocks and protects capital.

? Habits to Maintain for Wealth Building

– Keep expense below 40–45% of income
– Avoid impulsive purchases or lifestyle inflation
– Review EMIs before taking new loans
– Keep insurance simple and clean – term only
– Increase SIPs every year by 10–15%
– Avoid loans for consumption
– Don’t check market daily. Focus on goals instead

Stability and discipline matter more than chasing hot stocks.

? Finally

You are off to a strong financial start. You’ve taken responsibility at a young age.

Your EMIs are structured, and your surplus is healthy. Once short-term loans are over, your investable surplus will grow fast.

Use this time to streamline your portfolio, cut down debt, and set up strong SIPs.

Build goal-wise investments through mutual funds. Track using professional guidance through a certified MFD.

Avoid direct funds if you cannot monitor. Avoid index funds as they don’t protect during market downs.

Stick to active funds and review portfolio twice a year.

Keep insurance pure. Keep investing simple.

This 360-degree plan will ensure financial freedom, peace of mind, and smart growth for your future.

Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment