Financial Guidance - Plan According To Your Priorities

Q. I am a 24-year-old employed with a salary of Rs 24,500 p.m. I am married and I am living with my wife in company’s quarter. I am planning for my first child next year and for my second child 3 years thereafter. I don’t have any liability. My household expenditure is Rs 6,000 p.m. My monthly savings are as follows:
1)  Voluntary PF: Rs 5,400 p.m.
2)  Provident Fund: Rs 2,000 p.m.
3)  SIP of HDFC Top 200: Rs 1,000 p.m started in Oct. 2009.
4)  SIP of Rel. Regular Saving Fund: Rs 1,000 p.m started in Oct. 2009.
5)  ULIP Policy (Rs 2,50,000 Insurance) of SBI Life-Unit Plus-2 Regular Premium Unit-linked Plan: premium Rs 25,000 p.a.
6)  Saving in bank account: Rs 8,000 p.m.
Please suggest investments for my savings of Rs 8,000 so as to fund my purchase of a car after three years. Also suggest investments for my child’s education, marriage, etc. Please help me in deciding my portfolio to provide for my future liabilities. Also suggest changes in my existing portfolio or a new portfolio.
                                                                                                    -    Praful Patel, on email

A. Praful, an early saver is the one who laughs all the way to the bank! If you start saving now at the rate of Rs 5,000 every month in a fund that fetches you 12 per cent compounded per annum, you will accumulate Rs 25 lakh by the time you 39 years old. But if you start late, say when you are 27 years of age, by the time you are 39, you would have accumulated only Rs 16 lakh. The compounding effect of money can be huge over time. So I am happy you are starting early. I would rather you start saving for a home, first. If you save Rs 10,000 per month for the next 5 years in a 60 per cent equity and 40 per cent bond fund portfolio through an SIP, you should be able to accumulate about Rs 10 lakh which can serve as the down payment for a home loan. Since you have time on your hands, you could start with this goal and then as a next step start saving towards long term goals. By then you would also have two sweet children to inspire you to save for them! I am generally against ULIPs as they do not have a large insurance component. Whenever possible, I would advise you to take a cheap term policy which would fetch you a much larger insurance for a far lesser premium.