Saving for your child’s wedding

A judicious mix of equity and debt will yield the desired corpus

Getting children married well and leading a peaceful retired life is a dream for many.

Coimbatore-based Ramkumar who works for the Central government has similar dreams. He wants to mobilise a good corpus for his 17-year-old daughter Haritha’s wedding, which he anticipates will happen eight years from now. He also wants to save some corpus to dip into post-retirement for any emergency.

Investments

Ramkumar’s take-home monthly salary is ₹60,000. His wife, Sheila, who works for a private company, earns about ₹40,000 every month. The monthly family spend is ₹50,000.

Their current monthly savings is about ₹50,000, of which they invest ₹45,000 in bank recurring deposit schemes and the balance in equity-balanced (mutual fund) schemes. Haritha, currently in her 12th standard, is planning to join engineering, and Ramkumar has already planned for her education expenses.

Ramkumar currently has a term cover worth ₹1 crore provided by his employer. He also has mediclaim cover for his family. However, given that his retirement is 10 years away, he can consider buying an individual medical cover, apart from the one offered by his employer. This is because it will be expensive for him to get a medical insurance policy post-retirement.

Ramkumar wants to provide ₹25 lakh, at current cost, for Haritha’s wedding. Eight years from now, the wedding spend is expected to be ₹46 lakh, assuming an inflation of about 8 per cent. Being a government employee, he expects to receive a monthly pension of around ₹25,000. He wants to save a corpus of ₹1.5 crore by 2028, to meet any emergency.

Ramkumar currently has ₹25 lakh in his RD investment and ₹40 lakh in bank FD schemes. He currently resides in his own home and has another house owned by his wife, with a cumulative worth of ₹1.15 crore.

Portfolio change

His current monthly investment is skewed towards RD. Given that his daughter’s wedding is at least eight years away, Ramkumar can consider reallocating his monthly investment as follows — ₹30,000 in a combination of equity-balanced MF schemes and diversified large-cap equity schemes, and ₹20,000 in RD schemes.

He can consider balanced funds with a good track record, such as HDFC Balanced, L&T India Prudence and ICICI Prudential Balanced Fund. Likewise, in the diversified large-cap space, he can consider schemes such as Aditya Birla Sun Life Frontline Equity, Mirae Asset India Equity and Invesco India Growth Fund.

By 2026, his monthly SIP in mutual funds should help him mop up a corpus of ₹48.5 lakh, assuming an annualised return of 12 per cent. This should help him meet his daughter’s wedding expense of ₹46 lakh.

His monthly investment in RD schemes should aggregate to about ₹34 lakh by 2028, assuming an annualised return of 7 per cent. Assuming that his current FD corpus of ₹40 lakh continues to fetch 7 per cent annual return, it will be worth ₹78.7 lakh.

Similarly, Ramkumar’s current RD corpus of ₹25 lakh can be invested in equity mutual fund schemes, given that the time-frame for accumulating the emergency corpus is 10 years. He can consider investing it in diversified equity large-cap schemes. Assuming an annualised return of 12 per cent, the RD corpus can grow to ₹77.6 lakh by 2028. With this, Ramkumar should have ₹1.9 crore by 2028 to meet any emergency need.

The author is co-founder, Rana Investment Advisors.

 

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