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Published on 2/07/2019 10:49:06 AM | Source: HT Media

Factor in inflation and increase savings to meet your long-term financial goals

Posted in Mutual Fund Analysis| #Mutual Fund #Investment #Wealth

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I have invested around ₹20,000 each in ICICI Prudential Value Discovery Fund, Axis Long term equity fund, Franklin India Focused Equity Fund, Aditya Birla Sunlife Equity Fund and L&T Mid cap Fund. I want to start systematic investment plans (SIPs) with a monthly investment of about ₹80,000. My time horizon is 20-25 years, with a goal of about ₹2 crore for my daughter’s education and ₹3 crore for my retirement. Suggest a few funds for me.

— Omi Santoliya

You have invested in good schemes and have a diversified portfolio within the equity asset class with a spread of value, multi- and mid-cap funds. Equity as an asset does carry risk and hence is recommended for long term. As your investment horizon is long, you can consider equity as an asset class for creating a corpus for your daughter’s education as well as for your retirement. The monthly investments you want to start making via SIPs can also be in the same schemes where you have made the one-time investments. You may consider adding a large-cap fund to your portfolio for further diversification.

You can achieve your investment goals, but you need to be wary of inflation. A retirement corpus of ₹3 crore 25 years from now at 6% inflation would be equal to ₹70 lakh today. Hence, you need to increase your savings every year with increase in income. Make sure you invest any bonuses or extra funds as well.

I moved abroad for a job in September 2018. I didn’t close my Provident Fund (PF) account with the previous employer which I have had for 10 years. I don’t want to withdraw the money as I don’t need it. I plan on living abroad for about a year and a half. I want to know if I can leave the account as it is. Will it earn any interest on the accumulated amount? Will it become inoperative if I stop contributing?

—Durgadutt Shetty

If you leave your job and don’t join any new organisation, which is true in your case as you have moved overseas, your PF account will become inoperative. This is applicable when there is no fresh contribution for a continuous period of 36 months, thereby classifying the account as a dormant account.

All PF accounts were eligible to interest before restrictions were imposed in April 2011, whereby interest accrual was stopped for dormant accounts. This was done primarily to help the Employees’ Provident Fund Organisation (EPFO) save on interest payout. However, this restriction was lifted in April 2016 and dormant accounts were again allowed to earn interest till the account holder attained retirement age.

If you continue to hold your inoperative account, make sure that the account is compliant with KYC (know your customer) and that the UAN (Unique account Number) has been allotted to you for ease of dealing with the PF authority in the future. Keep in mind that interest accrued on a dormant PF account will be considered taxable income.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com