Investments – Ideas and Tips


How Much Money That You Need To Invest?

Investments in ELSS

Many of us may make some investments in ELSS (Equity Linked Saving Scheme) for saving tax this year. ELSS is a good investment, but do you have any idea how much amount that one need to invest to get the maximum advantage?

First of all, we need to decide whether to invest the maximum amount to avail the full tax benefits for the year. Many people just do that for the sake of saving some tax amount and they forget about the risks  associated with the equity-exposed investments such as Unit linked insurance plans (ULIP) and Equity linked saving schemes (ELSS). Yes, every investor should have sufficient amount of money exposed to few good performing equity linked investments to gain decent profit but that does not mean that we should invest all savings in equity products.

How much money one should we invest in equity savings and for how long?


As a thumb rule, it is not advisable to expose the whole savings to equity exposed investments. One need to keep a portion of it to meet future contingencies due to untoward incidents or any medical issues for self and family members. The amount one need to keep aside to meet these contingency risk factors may vary depending upon that individuals socioeconomic status. Your entire family may be covered under life insurance and health insurance but you still need to keep this contingency fund aside just to be on safer side.

Investments, Investible surplus and expenses calculation

Invest only a part of investible surplus and not all your savings. Investible surplus is the amount that you have after all your regular expenses – that include your family and personal expenses – are met. It is about deducting your 3-4 months average expenditures plus around 10% of annual savings. Let us make it clear with a simple example.

Consider your total annual savings are 400000 INR and your average monthly expenditures and contingency expenses are about 30000 rupees and 45000 rupees respectively.

Then your investible surplus would be around: 235000-265000 INR

400000-((30000*3) +45000) OR 400000-((30000*4) +45000))

If you know your regular investments, then it is easy to calculate your investible surplus by using the method mentioned above. This is an amount that we can ideally invest. However, it is still not advisable to go ahead and invest the whole money in ELSS or any other equity linked investments. Many people cannot afford to do so because products like ELSS or ULIP cannot be liquidated in first few years of its inception and it is subject to high market risk.


How Much Money That You Need To Invest?

In such situation, how to go about it? Just ask yourself, can you take that much risk? Many people cannot take such risk with their hard-earned money, especially if they are above 40 years and having too many financial commitments to self and family.

In such cases people would prefer investments in low risk asset classes even though such investment plans earns comparatively less return  than  high risk equity investments. The ideal solution would be to spread the whole investments into different asset classes. This way we can share the risk associated with the investments in equity products.

Managing Portfolio of Investments

Now, the question is how much percentage of your investments that we should expose to equity market every year?

There is a general thumb rule that shows the maximum percentage of investible surplus amount that one has to expose to equity products at any point of time in a year. There is no hard and fast rule that you should stick exactly to that rule but, ideally keep somewhere close to that. When you follow this rule, you will get better control on your portfolio and investment pattern. This will help you know where do you stand on the way to achieve your investment goal. This figure is calculated based on the age of an individual, so it is an approximate figure but the most ideal equity exposure of an individual can only be arrived through proper personal financial planning process with the help of a certified financial planner.

So What is this thumb rule for investments?

Minus your age from 100 and takes that much percentage of your investible surplus (Not full savings) of that year as the amount that we can invest in any tax saving equity-linked investment plan for that year.

Let us make it clear with the same example mentioned earlier. Here, our investible surplus amount is 235000 to 265000 INR. Let us assume your age is 30. That means you can expose up to 70% (100-30) of your investible surplus to any equity linked investments this year.

InvestmentsNow, if we take 70% of 235000 or 265000 INR (We can choose either one of these figure depending on  our personal preferences and risk appetite) we get the actual amount that we can ideally invest in this year. It comes to Rs.164500 to 185500.

Remember, this amount is subjected to change every year as you get older. This ratio varry based on investible surplus amount that we would have in the coming years. We need to adjust this level in each year and maintain the ratio between equity based investments to the other investment components. Maintain the percentage based on the age, overall portfolio value and the amount that you want to invest in each year.

We understand how much money that we need to invest in equity market every year.  Now, you may want to know how long one should invest in these equity linked instruments? Every ELSS has a minimum locking period of 3 years. Investors are free to exit this fund if they are happy with the return they earned after this locking period. In case the investors want to gain more return then they can wait for few more months or years for the fund to appreciate. 


Where To Invest?

Which are the top ELSS funds that we should prefer?

Almost all Asset Management Companies in India has an ELSS scheme. Investors need to go through the fact sheets of each mutual fund and analyze the previous years performances. Investors can make a decision based on this analysis. Here are three ELSS funds that performed well in the past years:

1. Franklin Templeton: Franklin Templeton Tax Shield

This is an open end equity linked savings scheme (ELSS) with an allocation of minimum 80% to equities to enable growth over the long term. Since this fund invest mostly in large cap blue chip companies, the investment made in this fund is subject to less volatile than mid cap funds. I suggest this fund in all market scenarios due less risky nature compared to its peers. 

2. SBI MF : SBI Magnum Taxgain Scheme

This is a very old fund but it has consistently performed at regular intervals in the past. You might not see this fund holding the top performer’s slot quite often but it will definitely give a decent return over 4-5 years of term.

3. TATA MF: TATA Tax Saving Fund

This fund is managed by the Fund manger, Pradeep Gokhale. One can invest Rs.500 or multiples of 500 in this scheme. This fund invest 80% to 100% in Equity & related instruments. The remaining part of this fund is allocated to listed and unlisted debt instruments. Since this fund is highly exposed to equity market, it is classified under high risk investment. This is a top ranking fund and performed consistently in the past.

Although there are many top performing ELSS schemes in the market right now, I am always in favor of these three funds because they have always shown stable growth over a period of 4-5 years. Investors can expect a decent growth from these ELSS funds. Always refer Mutual fund’s monthly fact sheet before making an investment in any mutual funds.

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Wealth Preservation and Income Protection

Wealth Preservation and Income Protection

Wealth Preservation and Income ProtectionMany of us make investments for meeting our retirement, child’s education and marriage expenses, and for other long-term and short-term objectives. We need to review our investment on regular basis to see that we addressed all our financial objectives. Have we done enough to secure our family from financial insecurity that may arise out of any eventuality happen to us or our business?

Let us analyze the situations that we come across in daily life.

Assume that we have taken a term insurance for a sum of 65L INR or 10 to 15 times of  annual income just for the calculation purpose. (Enough coverage to take care of family life style if any thing happen to us

  • Assume that we have made systematic Mutual Fund investments to create enough fund for child’s education and marriage as well.(Adjusted to 7% average inflation rate  per year)
  • Done investments to create corpus for comfortable retirement.
  • Finally, took a health insurance policy to cover the whole family’s medical expenses.

We have now set everything right and start making payments towards the insurance premium and Mutual Fund SIP (Systematic Investment Plan) investments as per our plan set above. Everything will be fine and things will go on as we planned. However, as you know, life is full of uncertainties. What if we – or the bread winner of our family – involved in a serious accident or anything such thing happened to our house or properties due to any natural calamities – like the one happened in Japan and Chennai few years back and still continue happening at many places in Asia and Europe? 

Wealth Preservation and Income Protection

Are we prepared for all such situations? What will happen if we are not prepared. 

– We will not be able to contribute or find it difficult to contribute towards the  commitments that we made for our long-term and medium-term investments to create funds for retirements,  education, marriage etc.

– In such cases, average level investors will have no other option but to exit from their regular investments and sometimes compel to withdraw money from the accumulated fund to meet emergency expenses arising out of any contingency issue mentioned above. Of course, our health insurance will take care of our medical expenses  but only to some extend.

Wealth Protection

Wealth and Income Protection is an important part of our financial planning. All investors should have a proper mechanism to safe guard their accumulated wealth and income from any eventuality should happen to them.

Let us now look at this case. Assume that we have done enough for our retirement and relaxed a bit now thinking that we would be going to have a comfortable and financially stable retirement life. However, unless we have a concrete plan in place to take care of our existing liabilities – such as home loan, personal loan or any other long-term or short-term commitments – we will end up with inadequate retirement corpus at the time of its need because we would have utilized the major share of retirement fund by then to meet the expenses incurred during the emergency situations in the past.

How to overcome this situation and preserve wealth? What is the solution: We need to find out the way to Safe Guard our Income and Wealth. Let us see how can we go about it.

First thing first. The most priorities should be given to liabilities. When mentioned about liabilities,  I mean loans taken from banks for buying assets such as house, land, automobiles or for meeting any emergency expenses such as education. As we know, banks give loans on hefty interest rate and it fluctuates every year. I know a person whose housing loan interest gone up from 7.5% to almost 14.4% in just five years time! Now we can imagine the extend this interest would likely to change in the coming 15 to 25 years. 

Wealth Preservation and Income ProtectionSolution

We need to take adequate insurance cover against our bank loan. Some insurance companies offer special insurance products only to safe guard loans and such products work in such a way that its sum insured would get reduced every year based on the outstanding loan amount. Better go for such products because they are much cheaper than traditional term plans. 

What If we have a car loan/ Home loan?

Take term insurance coverage equivalent to the outstanding loan amount. If we have a housing loan, then we need to take insurance coverage for that as well. This way we can take care of all our liabilities.  Now, they (dependents and survivors) do not need to dig in to the fund created for child’s education or marriage expenses for meeting their daily expenditure. 

Wealth Preservation and Income ProtectionHow to protect child’s education fund?

As mentioned before, child education fund is very important. We take child’s investment plan to create enough corpus for meeting education expenses and we need to protect this fund. We have to make regular investment to create corpus for the same but what if something happened to the payor who pays the premium for such child insurance plan and unable to pay premium any more? Here comes an amazing add on rider to take care of that.


There are many good child investment plans promoted by leading Asset management companies in India. Many of them do well in the market, offering decent returns over the years but hardly any of such equity exposed product offers any type of security in case of any uncertainties happened to the payor.

It would be wise enough to go for a mix of high growth mutual fund investment and a traditional insurance plan. As far as mutual fund investment is concerned, we can choose any good performing fund that is predominantly investing in blue chip companies in the diversified sectors. We can expect reasonably good return from such investment if we keep invested for over 5 years. Besides this investment, we need to put some money in a good child insurance plan as well. Take a juvenile insurance plan for a sum of the corpus that we plan for each child’s education expense.

For example: Assume that you have only one child and wanted to keep 10 Lac INR for his/her education. We can either start investing in Mutual fund SIPs to build that much corpus and/or take a child insurance policy that could offer us the maturity amount somewhere close 10 lac INR. We should attach a Payor benefit rider to this child’s policy. This will cost us an additional small amount but it is worth buying.

Wealth Preservation and Income ProtectionPayor benefit is a very useful add on rider which would protect child insurance plan against any lapse when the premium is not paid due to any eventuality happened to the payor. In normal cases, our life insurance policy will get lapsed when we do not pay premium on time. However, when we attach Payor benefit rider to a child policy, all future premiums for basic policy and riders would be waived up to maturity  of the basic policy or the child reaches 21 or the payor reaches age 60, whichever happened first will be applicable. All young parents should consider adding this rider to insurance policies taken for their child.

  • Take adequate health insurance coverage (Read: How Much Health Insurance Cover Should You Have?) for self and family: This way we can protect ourselves from any unexpected medical expenses. Take a separate accidental policy as well. Accident policy is available for very less premium and we get covered for death and dismemberment happened due to an accident under this insurance policy.
  • Take a term insurance equivalent to 10 to 15 times of annual income. Term insurance offer coverage for larger sum assured for relatively less premium than endowment plans. Term insurance is a pure risk plan and has no investment component in it so we are not going to get any bonus or maturity amount from such plans.
  • Though we have taken all precautions against major uncertainties from our side, there are other types of insurances for our house, office buildings, physical assets and factories as well. Most of these are usually taken care by  bankers, employers or builders. If it is so, then we need not worry about them any way but otherwise keep a check on them as well. If they are not insured yet, then go ahead and do it now before it is too late!

What is your views about the facts discussed here? Have you come across any such uncertainties? Share your  experience in the comment box below.


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