I earn 70,000 per month, of which I save 50,000. Where should I invest?

I am 25 years old and I win ??70,000 per month. I’m trying to create a portfolio with ??50,000 per month in the first years of my job. How much money should I invest and where? Also, should I go for life insurance now or can I do it later?

—Name hidden on request

Response from Harshad Chetanwala, Founder, MyWealthGrowth.com

First of all, congratulations on your new job. Your investment projects ??50,000 on the income of ??70,000 is very encouraging. As you are in the initial phase of your investment journey, you first need to build up a reasonable contingency fund for yourself. The contingency fund can represent about six to nine months of your monthly expenses and this money can be placed in a fixed deposit with your bank or in liquid mutual funds. This contingency fund should always be available to you and only be used in an emergency. In addition to building up your contingency fund, you should try to identify and assess financial goals that may arise in the short, medium, or long term depending on your needs. Your short- and medium-term goals could be buying a vehicle, making a down payment for a new home, pursuing studies, etc. While a long term goal could be the creation of wealth. Once you have decided on these goals, working on the investment plan can be much easier and will be results driven for you. You can invest in a mix of low-duration corporate bond funds and bank debt funds and PSUs for your short to medium term goals depending on their time horizon. From a wealth building perspective, you can invest in equity mutual funds through SIP. You may want to consider investing in large cap, large and mid cap, and flexible cap funds to get started. Here are some funds in which you can do your SIPs for wealth building.

UTI Nifty Index Fund – 20% of SIP

Canara Robeco Bluechip Fund – 20% of SIP

Mirae Asset Large Cap Fund – 20% of SIP

Parag Parikh Flexicap Fund – 20% of SIP

UTI Flexicap Fund – 20% of SIP

Your question on insurance is equally important and relevant. The purpose of life insurance is to replace the earning capacity of a person. Anyone who earns an income should have life insurance. One of the best ways to calculate life insurance is to use the income replacement method where you consider an annual rate of growth in your income until you reach retirement age. If we consider an average 8% increase in your annual income each year and assume that you want to work until the age of 55, you may want to consider term life insurance of ??1 crore to ??1.25 crore at present. Also, if you go for term insurance at a young age, the overall premium will be quite economical.

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