Got a question about your money? What you should or should not do with it?

Our expert Uma Shashikant has the answers.

I am 24 and earning Rs 19,000 per month. I will be getting married in February 2006. I want to save as much as possible by then.

My investments are in insurance and Public Provident Fund. I have opened another bank account into which I plan to deposit Rs 3,000 to Rs 5,000 a month.

The problem is that my credit card and phone bills hinder my savings.

I plan to take a personal loan to bear my marriage expenses. Is that a good move?

- Venkatesh D. Bhattacharya

Take control of your expenses before you take a loan. For that matter, even before you save or invest. Focus on clearing up all your debt.

If you keep your money in a bank for 5%, and take a personal loan at 12%, it makes little sense, doesn't it? Deny yourself at least half your salary and begin to save it.

Your PPF money and insurance are locked for the long term.

Since you have a short investment horizon, investing in equity (shares) and equity mutual funds is too risky.

Why don't you consider a hybrid mutual fund that invests partly in equity (shares) and partly in debt (fixed-return investments)?

To understand such funds, read Why you must invest in a balanced fund and 5 great balanced funds.

When to marry is a very personal decision.

But, if I knew you personally, I would ask you to wait for a few more years. It is wise to achieve some stability in your job and finances before taking the plunge.

Take a realistic look at your earnings and savings. Your expenses can only go up after your marriage. Also consider whether or not your wife will be employed. 

Perhaps you should talk to your married friends to get a sense of things.

• Should you invest in the Birla Top 100 fund?

I have a simple question. How much life insurance should I take?

My family would have expenses to the tune of Rs 7,00,000 per annum in my absence. However, the income from all sources would be just Rs 2,00,000 per annum. That leaves me with a deficit of Rs 5,00,000.

These expenses are arrived at keeping current prices in mind. I have to take inflation into account. Should I assume a 9% per annum or 5% per annum inflation rate?

- Goyal Anurag

Sensible thinking.

Opt for a pure term policy, or an annuity that will help your family live with the level of comfort they are presently used to. 

In its simplest form, term insurance is the purest form of life insurance. Should the insured person pass away, the family is protected by a certain amount.

Let's say you bought a term insurance policy for Rs 25 lakh (Rs 2.5 million). The term of the policy is for 20 years.

If you pass away during this period, your family will be richer by Rs 25 lakh.

But, if you outlive your policy, all your premiums (money that you pay every year to the insurance company to maintain your policy) would have gone down the drain.

Annuity is the regular payment that will be made by the insurance company.

Read The best term insurance policy for you.

Take into account expenses like your child's education, and provide for it as well. 

Insure any large loans you have, like a home loan, so the repayment burden does not fall on them. 

• Will my savings be taxed on maturity?

I am 25 and currently earn Rs 20,000.

1.       I would like a savings of around Rs 30 lakh (Rs 3 million) to Rs 40 lakh (Rs 4 million) by the time I am 45.  

2.       For the short term, I would like to invest in either shares or equity mutual funds and get around 25% per annum.

- Zafar  Shamim

Long-term

Your long term saving has to be in equity (shares) and equity mutual funds, to get you better returns. 

Begin with an  Equity Linked Saving Scheme. These are mutual funds that invest in shares and give you a tax benefit too. Read Which ELSS fund must you invest in?

Maybe you can do a Systematic Investment Plan. This will require you to put in fixed amounts every month in your mutual funds and you will accordingly get units allocated to your name. Read Mutual funds give great returns to see that the returns from an SIP outweigh those from a one-time investment. 

Short-term

There is no short-term investment that will give you 25%. The 10-year interest rates as I write this, are about 7.1%. 

Equity is risky in the short term, as the stock market can move up or down. 

Choose short-term funds to meet any short-term needs you have.

You can try cash funds. To understand cash funds read Tired of your savings account? Try this. If you do want to invest in them, read Great cash funds to put your spare cash into.

You could also consider Fixed Maturity Plans. Read All about FMPs and Why an FMP is a good investment.

Illustration: Dominic Xavier

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