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Emergency funds in a savings account give low returns and are taxable too

LiveMint logoLiveMint 03-10-2017 Surya Bhatia

I am 33 and my wife is 30. We have a combined income of Rs1.75 lakh a month with monthly expenses of around Rs45,000, excluding Rs35,000 towards home loan. We have an emergency fund of Rs14 lakh in our bank accounts. We don’t have any other dependents. We contribute Rs18,000 towards PPF, Rs5,750 towards LIC Jeevan Anand, and Rs9,500 towards provident fund. I also have a retirement plan and a monthly systematic investment plan (SIP) of Rs1,000 in HDFC Mid-cap Opportunities Fund. I have term insurance of Rs50 lakh and both of us have corporate medical insurance of Rs5 lakh each. I want to invest Rs15,000 a month towards mutual funds, looking at a horizon of 15 years. My risk appetite is moderately high. I am planning to retire around 55 and want to build a retirement corpus of Rs5 crore. What other investments can I make? 

—Harsha Kumble 

Let’s start with insurance. It is good to have term insurance when you have dependents. In your case, both of you are working but if your income is substantially higher than your spouse’s, then it is good to have a protection plan in the form of term plans. Your coverage appears to be on the lower side as you also have a housing loan. It is good to increase your term insurance and target to have 5-6 times of your annual income over and above your loans and debts.

Health insurance is covered by your respective employers but is recommended to have your own health insurance policy. Start with a lower cover and gradually increase it. Above that, you don’t need further insurance in any form. 

For emergency corpus—4-5 months of your cash flows is adequate to be held and the same can be held in the form of bank fixed deposits or ultra short-term mutual funds. These funds should not be held in a savings bank account as its earnings are low and also taxable. Funds held in excess should be invested for a longer horizon.

Your potential to save is quite high. However what you plan to save is much lower than your savings potential. Maximise your savings as you don’t have any dependents right now. You should target to create a long-term corpus with your enhanced savings amount.

The targeted amount can be easily achieved if you save regularly to your potential. You should even plan to increase your savings regularly as your income goes up. You can create a basket of investments in mutual funds. Create a portfolio mix across asset classes and, as your risk profile is moderately high, create a mix of equity portfolio with large-cap, multi-cap, mid-cap and even balanced funds. The said portfolio should be reviewed periodically.

I am 72 years old. I have 750 shares of a listed company with transfer deeds bought 15-20 years ago through share brokers. Because of a long illness, I failed to get the shares transferred in my name. Can you please advise or help regarding how I can go about it now?

—Parmesh Kumar Puri

In case of securities held in the form of physical shares, the shares can be transferred by executing the share transfer form and ensuring that the transferors and transferees have duly signed and that the signatures of the transferors are witnessed on the said form. Along with the form, a self-attested copy of the Permanent Account Number (PAN) card of the transferors and transferees are also to be submitted. The transfer form needs to be affixed with the requisite stamp duty—franked or affixed. The stamp duty is applicable at the rate of 0.25% of market value or the consideration amount, whichever is higher. The same along with the relevant physical shares are to be deposited with the Registrars of Companies within 60 days from the date of its execution specified thereon.

In your case, as the period of 60 days is long overdue, you can give an application for extension of validity of share transfer form in the prescribed format to the Registrar of Companies, along with nominal fees. The registrar, if satisfied with the reasons mentioned for delay, shall extend the validity of transfer form for a period of 30 days only. And then the transfer deed can be deposited with the company within the said time.

Surya Bhatia is managing partner at Asset Managers.

Queries and views at mintmoney@livemint.com.

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