I earn ₹70,000 every month, from which I save ₹50,000. Where should I invest?

—Name withheld on request

Answer: Harshad Chetanwala, Founder, MyWealthGrowth.com

First of all, congratulations on your new job. your investment plan 50,000 out of the income of 70,000 is very encouraging. Since you are at the initial stage of your investment journey, the very first thing you should do is to build a proper contingency fund for yourself. Contingency funds can be around six to nine months of your monthly expenses and this money can be kept in fixed deposits of your bank or liquid mutual funds. This contingency fund should be available with you at all times and should be used only in case of emergency. Along with building your contingency fund, you should try to identify and evaluate the financial objectives that may come in the near, mid or long term depending on your needs. Your near and mid-term goals could be buying a vehicle, making a downpayment for a new home, pursuing further studies, etc. Whereas a long term goal can be wealth creation. Once you have fixed these goals, then working on an investment plan can be very easy and it will be result oriented for you. You can invest in short duration, corporate bond funds and a mix of banking and PSU debt funds, depending on their time horizon for your short- to mid-term objectives. For wealth creation perspective, you can invest in equity mutual funds through SIP. To get started, you can consider investing in large cap, large and mid cap and flexicap funds. Here are some of the funds in which you can do your SIPs for wealth creation.

UTI Nifty Index Fund – 20% of SIP

Canara Robeco Bluechip Fund – 20% of SIP

Mirae Asset Large Cap Fund – 20% of SIP

Parag Parikh Flexicap Fund – 20% of SIP

UTI Flexicap Fund – 20% of SIP

Your question on insurance is equally important and relevant. The purpose of life insurance is to replace the earning capacity of an individual. Everyone earning income should have life insurance. One of the best ways to calculate life insurance is to use the income replacement method where you consider the annual growth rate in your income until retirement age. If we consider an average 8% increase in your annual income every year and assume you want to work till the age of 55 then you can consider a term life insurance 1 crore to 1.25 crores at present. Also, if you go for term insurance at a young age, the overall premium will be quite affordable.

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