Readers’ Corner
My wife and I have a combined monthly income of ~170,000. I took a term plan of ~8 million to cover my home loan. My wife has a traditional plan of ~2.5 million. How much more insurance do we need?
Fundamentally life insurance should not be taken with any linkage to income. It should be taken to cover your family’s lifestyle expenses, to cover liabilities and provide for financial goals. I think you are way too under insured. Just to cover a monthly expenditure of ~25,000 you need to have a life insurance of a minimum ~9-10 million.
My bank offers a strategy for systematic investment plans (SIPs) in mutual funds. It takes a bulk amount and puts it in a fixed deposit. If I invest around ~1.25 million, I will get ~5,000 interest a month, which the bank will invest in my choice of funds. Should I go for it?
This is a strategy that will benefit the bank more than it will help you. If you put your entire ~1.2 million into mutual funds, you could expect your funds to double every five years. In 10 years you would have close to ~5 million. With your bank's proposed strategy, in 10 years time, you will barely reach ~ 1.5 million.
I have got a bonus. I am wondering if I should use the money to pre-pay my home loan. It’s a 20-year loan and has been going on for seven years.
I would say enjoy the home loan which comes to you at a very low interest of approximately 8.5 per cent. When you invest in growth- oriented instruments like stocks and mutual funds, you tend to earn a higher rate of return of about 15-17 per cent or more in some years. So it would be wise to invest more so long as you can afford to keep paying the equated monthly instalments.
I started investing in mutual funds two years back. I ended up investing in about eight funds. I want to make a proper portfolio now. Can you give broad guidelines on how I should go about it.
A broad strategy of investing would be to put about a third of your money into large caps, about 25 per cent into mid-caps, 25 per cent in small caps, and the remaining money into promising sectors like financial services, pharmaceuticals and healthcare and consumption opportunities. Create a portfolio that can serve you for decades together. Consider no more than one to two funds in each category, which would mean a maximum of about six to eight funds.
My friend got me brochures of a scheme that promises 30 per cent return a year. Investors need to buy a holiday home property. The house is rented out, and 30 per cent fixed return is promised to the buyer. Is this a scam or is it for real?
I would not call it a scam, but I think it is really difficult to get a return of 30 per cent, and that too guaranteed. Many factors are at play simultaneously — location, initial cost, per night rental, maintenance rate, occupancy rate, staff cost, etc. Investigate, read the fine print carefully, and consult others before you invest .