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It is not an easy decision to give up a job that offers steady income every month to pursue something that is close to one’s heart.
It requires a balance between what one wants and what one needs.
But it is not that difficult if one has prudently planned finances such that there is an investment corpus that can either fetch regular income or is large enough to dip into, as and when need be.
For Chennai-based Tejashwini, who completed her law course about three years ago and is currently working for a law firm, the dream has always been to start her own practice.
Recently married, she can bank on her husband, a finance professional, to support the family finances. More importantly, she does not have any big financial commitments, and hence plans to startg her dream venture five years from now.
Her parents and in-laws are financially independent and that also helps her pursue her dream without having to worry much about family finances.
Investments
Her current monthly take-home salary is ₹40,000. She spends about ₹15,000 every month, and the surplus left is available for investment.
She has invested about ₹4 lakh in a recurring deposit scheme which will mature soon. She has been investing in mutual funds for the past two years — it has been in equity-linked savings schemes (ELSS) for tax-saving purposes.
The current corpus in the ELSS schemes is ₹2.25 lakh. Tejashwini has also invested in the Public Provident Fund, the current corpus of which is ₹1 lakh. Her current investment in the ELSS mutual fund schemes will be available for re-investment in April 2019 (₹0.6 lakh) and April 2020 (₹1.65 lakh).
She wants to save a corpus of ₹20 lakh for starting her own law firm. Given that she will not draw regular monthly salary once she is on her own, she wants to mop up ₹10 lakh as a contingency fund, which can come in handy to meet any unforeseen expenditure in the future.
Her investment is currently skewed towards fixed-income investment instruments — recurring deposits. Given that she is young and has a five-year investment horizon, she can consider equity mutual fund schemes and fixed-deposit schemes by NBFCs.
Rejig
She can consider investing her monthly saving of ₹25,000 in a combination of diversified large-cap fund schemes and balanced fund schemes. Assuming an annual return of 12 per cent in large-cap schemes and a monthly investment of ₹20,000, she can accumulate a corpus of ₹19.7 lakh by 2023. If she invests the balance ₹5,000 in equity-oriented balanced schemes with an average annualised return of 10 per cent, she should be able to have a corpus of ₹5 lakh at the end of the fifth year. The calculation assumes an annual salary hike of 10 per cent.
Her ELSS investment corpus of ₹2.25 lakh currently fetches about 10 per cent annualised returns. If re-invested in better large-cap schemes with an expected return of 12 per cent, Tejashwini should be able to mop up about ₹4 lakh by 2023. With this, she will have ₹28.5 lakh by 2023.
The current corpus of ₹4 lakh in the RD, which is available for re-allocation in other assets, can be invested in fixed-deposit schemes of non-banking finance companies. There are two schemes that provide relatively high safety, yet offer attractive rates of about 8 per cent — Shriram Transport Finance Corporation and Mahindra and Mahindra Financial Services, both of which are rated FAAA by CRISIL, denoting the highest safety of principal. This should help Tejashwini mop up ₹5.6 lakh by 2023. With this, she will have a total of about ₹34 lakh by 2023, which can help her pursue her dream. With interest rates on the up-tick, she can also watch out for high-rated NBFC fixed deposits or NCDs that offer superior interest rates.
Tejashwini can consider balanced funds with good track records such as HDFC Balanced (now renamed HDFC Hybrid Equity) , L&T Prudence (renamed L&T Hybrid Equity ) and ICICI Balanced Fund (renamed ICICI Prudential Equity & Debt). Aditya Birla Sun Life Frontline Equity, Mirae Asset India Opportunities Fund (renamed Mirae Asset India Equity) and SBI Bluechip are some large-cap-oriented schemes that can be considered.
The writer is co-founder, Rana Investment Advisors
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