Hello, I'm 25 years old and working at a service-based company earning approximately 44,000 per month. I am the sole provider for my family, which includes my mother and younger sister (who has completed her education and is preparing for government jobs). My monthly expenses are around 20,000. Currently, I have no savings except for about 1 lakh in my Provident Fund (PF). Additionally, I've begun investing 4,000 per month in the Public Provident Fund (PPF) over the last 4 months. I lack knowledge about other investments like SIPs and mutual funds. I am planning to purchase health and term insurance soon. I am currently upskilling myself to secure a higher-paying job, which I aim to achieve by the end of this year. Presently, I live on rent but have plans to buy a home in the future. I can currently allocate 15,000 per month towards investments, with the intention of increasing this amount in the near future. Could you please suggest some suitable investment plans or schemes for me?

Ans: You’re doing an excellent job managing your finances and taking care of your family. Let's explore how you can enhance your investment strategy to achieve your financial goals.

Understanding Your Financial Situation
You are 25 years old, earning Rs. 44,000 per month. Your family depends on you, including your mother and younger sister. Your monthly expenses are around Rs. 20,000, and you’ve just started investing Rs. 4,000 per month in PPF. You have Rs. 1 lakh in your Provident Fund (PF) and no other savings. You’re also planning to purchase health and term insurance soon. You aim to buy a home in the future and currently live on rent. Additionally, you can allocate Rs. 15,000 per month towards investments.

Setting Financial Goals
Your main financial goals are:

Building an emergency fund
Investing for future growth
Securing health and term insurance
Saving for a future home purchase
Upskilling for a higher-paying job
Let’s break down how to achieve these goals.

Building an Emergency Fund
Importance of Emergency Fund
An emergency fund is crucial. It helps you handle unexpected expenses without disrupting your financial plans. Aim to save at least 3-6 months’ worth of expenses.

Starting Small
Begin by setting aside a portion of your income each month. Given your expenses are Rs. 20,000, aim for an emergency fund of around Rs. 60,000 to Rs. 1,20,000.

Gradual Savings
You can start small and gradually increase the amount. For instance, allocate Rs. 5,000 per month initially. Once you achieve your emergency fund target, you can redirect this amount to other investments.

Investing for Future Growth
Understanding Investment Options
Investing in mutual funds and SIPs can offer higher returns compared to traditional savings methods. Let’s explore these options.

Systematic Investment Plans (SIPs)
SIPs allow you to invest a fixed amount regularly in mutual funds. This approach helps in averaging the cost of investment and leveraging the power of compounding.

Diversified Mutual Funds
Consider diversified mutual funds that invest across various sectors and companies. They offer a balanced risk-reward ratio and are managed by professional fund managers.

Balanced Advantage Funds
These funds dynamically manage the allocation between equity and debt. They provide a balance of growth and stability, ideal for investors with moderate risk tolerance.

Equity Linked Savings Scheme (ELSS)
ELSS funds offer tax benefits under Section 80C and have a lock-in period of three years. They invest primarily in equities and have the potential for high returns.

Securing Health and Term Insurance
Health Insurance
Health insurance is crucial to cover medical expenses and protect your savings. Choose a comprehensive policy that covers a wide range of illnesses and treatments.

Term Insurance
Term insurance provides financial security to your family in case of an unforeseen event. Opt for a term plan with adequate coverage based on your family’s needs and future goals.

Saving for a Future Home Purchase
Planning for Down Payment
Start saving for the down payment of your future home. Typically, lenders require a down payment of 20% of the home’s value.

Allocating Funds
You can allocate a portion of your monthly savings towards this goal. For example, you can set aside Rs. 5,000 per month for this purpose.

Long-term Investment
Consider long-term investments like PPF and mutual funds for your down payment fund. They offer good returns and help in accumulating a significant amount over time.

Upskilling for a Higher-paying Job
Investing in Education
Upskilling yourself is a great step towards securing a higher-paying job. Allocate time and resources to enhance your skills and qualifications.

Potential Income Increase
A higher-paying job will significantly improve your financial situation. It will enable you to save and invest more, achieving your financial goals faster.

Investment Strategy
Monthly Allocation
You can allocate your Rs. 15,000 monthly investment as follows:

Emergency Fund: Rs. 5,000
SIPs in Diversified Mutual Funds: Rs. 6,000
PPF: Rs. 4,000
Reviewing and Adjusting
Regularly review your investments and financial situation. Make adjustments as needed based on your income, expenses, and goals.

Evaluating Investment Options
Avoid Index Funds
Index funds might seem attractive due to lower fees, but they have limitations. They may not always beat inflation or provide superior returns consistently. Actively managed funds, with professional management, can offer better returns and adapt to market changes.

Benefits of Regular Funds
Direct funds require active management and market knowledge. Investing through a Mutual Fund Distributor (MFD) with CFP credentials offers professional guidance and better fund selection. This can lead to better performance and peace of mind.

Final Insights
You’re on the right track with a clear focus on your financial goals. Prioritizing an emergency fund, investing for future growth, securing insurance, and planning for a home purchase are wise steps.

Start with small, manageable investments and gradually increase them as your income grows. Regularly review your financial situation and seek professional advice if needed. With dedication and strategic planning, you’ll achieve your financial goals effectively.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in