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Life Insurance - Single & looking for financial independence? Start early
06-Mar-2008
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With International Women's Day around the corner, here are some tips on financial planning to independent women.

Trisha Shetty, a 32-year-old working professional, is someone who's referred to as a 'single woman' in our marital status-obsessed society. In other words, she is an independent woman who's set out to live life on her own terms. And like all smart women, she's planning to buy a house of her own to reinforce her independent status.

Her annual package works out to Rs 2, 99,000, with the net income being approximately Rs 2, 81,000, that is, Rs 23,400 per month. Her aim is save enough in the next seven years that will enable her to buy a house, which would cost Rs 55 lakh after seven years. This means that she needs to make provisions to generate at least Rs 20 lakh for down payment by the end of the seven-year period starting 2008-09. Her monthly expenses are Rs 8,000 and she manages to save Rs 14,000 every month (Rs 1, 68,000 per year), which is available for suitable investment deployment.

So, what is the advice that financial planners have to offer to Trisha and her likes? Investing in equity-based mutual funds seem to be the way forward for her, according to financial planning firm Transcend's director Kartik Jhaveri as well as Money Care Financial Planning head Zankhana Shah.

Says Mr Jhaveri: "She will have to invest to create maximum wealth from her savings of Rs 14,000 per month, and hence she will have to consider only equity investment. If she invests that much, with an expectation of 14% returns per annum, in seven years, she will get to the figure of Rs 20 lakh." The balance Rs 35 lakh could be funded by taking a home loan.

Further, Trisha needs to ensure that she takes full benefit of tax savings in 2008-09. Since she pays an LIC premium of around Rs 5,000 and contributes Rs 13,000 to the provident fund, she needs to deploy another Rs 82,000 to take full advantage of Rs 1 lakh investments under section 80C. "Out of her savings of Rs 14,000 per month, it is advisable to invest Rs 7,000 per month into an ELSS scheme. Thus she will be able to take full advantage of tax breaks," he said. The other Rs 7,000 per month could be invested into a diversified equity mutual fund (or again into an ELSS scheme based on available tax limit available under Sec 80 C).

Considering that the equated monthly installment for an Rs 35 lakh loan, with tenure of 15 years, would amount to around Rs 38,000 per month, she can afford this as there would be no requirement to save Rs 14,000 per month after seven years. An underlying assumption here is that her net income would have gone up by at least Rs 24,000 per month by then, thus enabling her to spare Rs 38,000 as the home loan EMI. Although Ms Shah is quite clear that the mutual fund route is the best method of investing for Trisha, she recommends a slightly different portfolio.

"Trisha should invest in equity and debt instruments in the ratio of 60:40. Out of her annual savings of Rs 1,68,000, 60% can go towards ELSS/diversified equity funds and 40% should be invested in debt based long-term income plans, which fetch good returns with a low downside risk," she suggests. These income plans could earn a return of 10% per annum and would also take care of any contingencies that may arise in the short to medium term. Debt-based income plans would provide the liquidity that Trisha would need under such circumstances. So, that takes care of Trisha's aspirations. If your dreams are similar to hers, you would do well to follow the advice that the two financial planners have offered.

Source : www.insuremagic.com back