Too many dependents? Here's how to manage

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

Our expert Devang Shah has the answers.

My monthly salary is Rs 19,000.

With this, I have to take care of my parents, wife and baby.

 How must I manage my money? Where can I invest to save on tax?

 - Salim Sayyed

Dear Salim,

I have answered your queries under various heads.

Insurance

My first concern would be that, if you are bread earner, you must consider covering your life. God forbid, but should something happen to you, your family will be in a soup. 

A simple term cover does not cost much and will provide at least some relief to your dependents.

Do understand that pure term cover does not return any money if you outlive the policy period. But it will cost you very little.

For instance, a Rs 10 lakh (Rs 1 million) cover for 20 years for a 35-year old might come for under Rs 500 per month. So you just have to pay a few hundreds a month. Should something happen to you, your family will get the money and they can invest it for their future.

Liquidity

Secondly, you need to keep money aside for emergencies.

You could consider a bank fixed deposit or even a liquid fund such as the HDFC Liquid fund.

Liquid funds are known as ultra short-term debt funds or cash funds that invest in fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. So, the money you invest will eventually be returned to you with a little something added.

I am very aware that no amount of money is enough for emergencies. However, for practical purposes, a few month's expenses could be a good place to start.

Tax saving

You have not mentioned anything concerning your investments or savings. So I am assuming you are only starting out now to build your wealth. If that is the case, you might not want to take very big risks.

The Public Provident Fund is not a bad place to get a decent return of 8% per annum and also save taxes. But it locks up your money for 15 years.

The National Savings Certificate is for six years and also offers 8% per annum. But, since the interest is taxed on maturity, the post-tax return is less than the above.

Pension plans of insurance companies also saves taxes but are more complex to evaluate and choose. They could also be expensive sometimes.

Investing

You may want to start out by gradually investing in mutual funds. Over the long term, equity gives the best return. And, for those who are not stock market savvy, the best route is by investing in a mutual fund where the fund manager does the investing on your behalf.

For starters, you could invest in floating rate funds such as Templeton Floating Rate Fund. These are funds that invest in instruments with a floating interest rate as against a fixed interest rate. This will help you understand how mutual funds work.

When the stock market drops, you will then be prepared to invest in a diversified equity mutual fund.

Also read: Don't know how to save?
 

 

Illustration: Dominic Xavier

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