Every month our resident expert on all things personal finance will answer all your queries related to the world of investments, taxation and financial management. The Pfin Doctor  will be able to diagnose the health of your portfolio and offer better advice if your questions are precise, and the description of the ailments detailed. Write in to [email protected]

I am a single unemployed mother and wish to save for my daughter’s wedding. My only source of income is around Rs 9 lakh which I get from my deceased father’s savings. I would like to keep aside Rs 50000 on a monthly basis for her higher education and wedding expenses. Is it a good idea to invest this amount fully in gold? Would you suggest investing in physical gold or gold ETFs? I would like to have a corpus of Rs 1 crore for my daughter by the end of 2025. How much should I ideally save per month considering the inflation rates? Could you suggest other safer means of saving and investing?

Vandita Suneja, Chandigarh

Based on the inputs provided, we are assuming that Rs 9 lakh is the post tax income for you. This translates to Rs 75000 on a monthly basis. Gold has always been an ideal portfolio hedge instrument – considered a safe investment during an economic crisis. Besides, many people prefer accumulating gold for marriage purposes in a systematic manner nowadays to avoid paying a very high price five or ten years hence. Off late gold’s performance has been quite volatile. However, in your situation, I would suggest investing around 5-8% of your long term portfolio into gold.

For investment purposes I would suggest investing in gold ETFs. It offers high liquidity and ensures that the quality is consistent. The cost incurred in buying and selling gold ETFs is lower than the cost of buying, selling and insuring physical gold. Also you evade any making or delivery charges.

Since you are planning to save Rs 50,000, even if you continue investing the same amount into some market-linked investment yielding an annual return of around 10%, the contributions would grow to Rs 1.38 crore by 2025.

You mentioned that you wanted to have a corpus of Rs 1 crore for your daughter. Assuming that is an inflation adjusted figure you are looking at, then you would need to invest around Rs 37,000 per month on the same terms mentioned above. If however, you have not factored in inflation, then the inflation adjusted value of Rs 1 corer after 12 years would be around Rs 2 crore (assuming an inflation rate of 6%). For that, the monthly savings would have to increase up to Rs 75,000.

I can understand it would be impossible for you increase your savings allocation at the point in time. Therefore, to give yourself a good chance of creating a Rs 2 crore corpus for your daughter, you may have to be a little more venturesome. I’m not saying make big stock market bets, but do have a limited exposure there. You should invest 80% in fixed income securities since they are less risky and give a decent return. These can include government and corporate bonds, national savings certificates (NSC) and post office monthly income scheme (POMIS).

Fixed deposits are high interest yielding term deposits. You can also avail loans up to 80% of your deposit. Thus this would be a safe option too.

Public Provident Fund (PPF) is a good investment because all the balance that accumulates is exempted from wealth tax. Underwritten by the government, it virtually has zero risk.

 You can also invest some amount in balanced equities which is a hybrid fund. The concentration should be more on debt than equity since debt is less risky as compared to equity, maybe a ratio of 80:20.

 

I have two children. My son is pursuing a master’s degree in the US and my daughter too is planning to go abroad for higher education. I have a business venture and my average annual income is Rs 20 lakh. The university fees are going up and the falling rupee has meant that I need to spend considerably more on overseas education. How easy or difficult is it these days to get an education loan. I would also like to know what kind of insurance plans do I buy for them.

Ejaz Chishti, Delhi

As you probably know from your son’s experience in US, there are teaching and research assistantships offered after the first semester that will help reduce the financial burden somewhat.

 You can take loans from Indian banks for a sum of upto Rs 20 lakh. The interest rates are somewhere around 11.5% to 12% and the repayment period is between 5-7 years. You will need to mortgage a security to the tune of 150% of the loan amount with the bank.  An additional benefit offered to women students is that they get a rebate of 0.5% on the interest charged.

Taking loans in the US is also possible and cheaper if the student has a social security number, which is obtained if she does a job there and the co-signer is a resident of that country.

Coming to your question on insurance, the most common is the student insurance policy. This covers the medical insurance plan and the travel policy. Apart from the basic medical expenses this plan also covers other aspects such as personal liability and permanent disability due to an accident. The travel insurance facility insures you against the loss of passport or baggage.

Normally medical insurance is compulsory in most universities abroad. Buying insurance from the university would turn out to be very expensive, almost thrice the price sometimes. Most banks have started selling these insurances. Thus if you apply for a loan, they would let you know about the same.

Before buying a policy, it is essential to make sure that the policy fulfils all requirements of the university. Some universities do not accept insurance policies taken from here. Hence you should make sure they approve of it.

You can take a student insurance policy for various tenures, from as short as one day to as long as two years.