Given that Preethi was supporting her parents by means of her earnings, we suggested she take a term policy for Rs 25 lakh, the premium of which would be around Rs 4,811. The balance could be invested in ELSS (equity linked savings scheme, a tax saving mutual fund) within a combination of 3 to 4 funds.
This would ensure that the entire Rs 1 lakh would be appropriately invested across existing LIC insurance, term cover and ELSS.
The asset distribution would look as stated in the graphic: the equity exposure should always be kept lower than 90 less your age (in Preethi's case it would be 90 - 27 = 63 to ensure that it is manageable.
Diversification is a golden rule to ensure that we optimise on our returns. Preethi was fine with a higher risk profile and also wanted liquidity early and hence we took a high equity exposure. We explained to her that if she would like to be conservative, she could allocate about 12 to 15 per cent of her tax saving investment into lower risk avenues like PPF/ bank deposits/ infrastructure bonds.
The medical premium availed by Preethi for her parents would qualify u/s 80D. Although she was adequately covered by her company, it only made sense to avail a higher cover, since the cost towards health hazards has been growing at a minimum rate of 7.5 per cent rate per annum. This would mean she can claim Rs 14,309 (parents' medical premium) + Rs 15,000 (self) u/s 80D.
Also see: Investment trends in 2009
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