Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com:As for your health insurance, you should purchase a cover of at least Rs 1 crore since the mediclaim policies provided by your employer might be inadequate. Some insurers offer policies with a base cover of Rs 5-10 lakh and top-ups of Rs 90-95 lakh for relatively low premiums. You should also purchase additional term policies to get life covers of Rs 1 crore each to ensure adequate replacement income for your dependants. Also, build an emergency fund big enough to meet your unavoidable expenses for at least 6-12 months. Park this fund in fixed deposits of scheduled banks offering yields of 7.5% and above.
Use a part of your property sale proceeds to foreclose your outstanding home loan and raise your monthly investible surplus. Consult your taxation adviser and check whether using it for home loan prepayments can help reduce your capital gains tax liability. If not, the long-term capital gains should be invested in the specified bonds of REC, PFC and IRFC which are eligible for tax deduction under Section 54EC.
The remaining proceeds, along with your monthly investible surplus, should be used for meeting your financial goals. Invest Rs 1.5 lakh in the PPF each fiscal year. You should also invest Rs 1.5 lakh per year in the Sukanya Samriddhi Yojana for your daughter’s higher education corpus. Invest your residual property sale proceeds in a large-cap index fund and a flexi-cap fund in equal proportion via SIPs of two years. You can consider equity funds for investing your monthly surplus, as well as the sale proceeds of your equity shares and life insurance investment plans. Route your SIPs through a high-yield savings account to generate higher returns during the SIP period.
Since mixing insurance and investment leads to sub-optimal returns and inadequate life cover, you should exit the investment plans purchased from life insurance companies and invest the redemption proceeds in equity funds. Mutual funds are much superior than insurance-cum-investment products in terms of disclosure norms and transparency in consumer communication regarding their investment style, portfolio composition, past performances and other fund management-related information. In my view, you should also sell your shares, unless those are your highconviction picks, and invest these proceeds in equity funds.
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