Financial plan for Young IT professional.

I am 28 and work in an IT firm. My wife, 25, is a home-maker, we have a one-year-old daughter. My parents (55 and 52) are my dependents. Should I buy a flat in my hometown or in Chennai?

I invest ?25,000 every month in a chit fund, which closes next year. I have ?18 lakh worth endowment and ?8 lakh worth money-back policy. I invested ?1.8 lakh in equities, and ?1 lakh in ELSS in 2008 after which I have not made any additional investments. Should I discontinue the chit fund investment?

Kumar

Before investing in realty, decide where you wish to settle down, post-retirement. It does not make sense to buy a house if you have to frequently shift your base. Buy a plot using your savings account balance if you intend to settle down in your hometown post retirement. If you buy a flat now and rent it, you need to spend on re-furbishing it post-retirement. Go for a gated community plot that is at least two times the size of a flat, in an upcoming location. Should the land price appreciate and equal the cost of construction, sell the plot and buy a flat. Live in a rented accommodation until then.

The dividend return in a registered chit fund may be around 11 per cent (7.7 per cent post-tax). Bid for the chit once the dividend falls below 10 per cent and avoid chit funds in future. To save ?31.5 lakh for your child’s education, assuming 7 per cent annual inflation for the next 17 years, save ?4,780 every month. The investment should earn 12 per cent annual returns. You will need ?1.42 crore for your daughter’s marriage 23 years from now, assuming 7 per cent annual inflation. If you invest ?9,650 every month in an asset class that earns 12 per cent annually, you reach the target.

It is best not to combine insurance and investment. Hence, buy a term cover for ?1.5 crore. Follow an asset allocation strategy of 60:30:10 in equity, debt and gold.

(The writer is a financial planner and founder, myassetsconsolidation.com . Send your queries toblinefp@gmail.com)