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Summary: At 24, Sumit’s low expenses, disciplined savings, and early investing habit give him a strong head start in wealth creation. Now, his focus should shift towards structuring his investments, insurance, and emergency fund around long-term goals like marriage and future family responsibilities.
Sumit is 24, earns Rs 35,000 a month at a multinational company, and lives with his parents. What’s working for him is that he has a long runway with almost no mandatory expenses. Also, only Rs 10,000 goes into monthly spends, saves diligently, and has already started investing in mutual funds and stocks – he has a great financial habit. The question is how he can achieve his goals. His plan is to get married in two years, so let us look at the financial roadmap for him.
Why an emergency fund is essential
Windfall expenses due to unforeseen events such as a job loss, a medical emergency, or any unplanned major expense can come up at any time. An emergency fund can take care of such expenses. For investors currently supported by family, the immediate urgency for this feels low. However, the need for an emergency fund becomes higher once Sumit gets married.
At Sumit's current stage, while parental support covers living expenses, a minimal liquid buffer should be present by now. Because when he marries in two years, he should have a six-month worth of combined household expenses held in a combination of sweep-in fixed deposits and short-duration debt funds. This combination will earn a return that is higher than a savings account.
Sumit has roughly two years to build this buffer without it competing with his wealth-creation investments. Starting small with even Rs 1,000-2,000 can also help him avoid a sudden lump sum outflow during his marriage.
You, too, can use the VRO investment calculator to know how to reach this amount.
How insurance acts as an anchor
Whether an insurance product serves an investor's needs depends on two factors: the purpose of the cover (pure protection vs investment) and whether financial dependents exist. These two questions determine the appropriate structure for both life and health insurance at any income level.
Life insurance
A term plan provides the highest cover per rupee of premium. Sumit holds a Rs 50 lakh term cover; it is a product designed for pure income replacement. The standard framework for getting life cover is that the person has financial dependents who would require the sum to be paid out to continue paying living expenses without disruptions.
At 24, with no dependents, a Rs 50 lakh term plan is more than adequate; once he marries, the appropriate cover size should be recalculated against actual household income and liabilities.
Endowment plans and unit-linked insurance plans (ULIPs) bundle investment with insurance. The outcome is a structural compromise where you receive neither good cover nor good returns.
Health insurance
Sumit's employer provides Rs 4 lakh in health cover, but employer-provided health cover has a critical structural gap: it ceases when employment ends. During any job transition (common in a person’s early and mid-20s), there is a period of no health cover at all.
A personal health plan with cover of Rs 3–5 lakh addresses this gap; the indicative annual premium for such a plan for a 24-year-old is Rs 6,000-8,000 per annum.
There are two clauses that are essential to note for this case:
- Co-pay: You have to pay a certain portion of the expenses regardless of whether the treatment cost is within the coverage amount.
- Sub-limit: This clause ensures that coverage is restricted to certain expenses: doctor fees, room rent, ICU charges, etc. For instance, if a Rs 2 lakh policy cover has a sub-limit for daily ICU charges at 2 per cent of the sum insured, the insurance company will only pay up to Rs 4,000 for the same. The balance cost has to be borne by the insured.
When choosing a policy, Sumit should choose one without these two clauses, as it ensures he gets the clearest and most predictable cover.
Also, health plans cover treatment of certain medical conditions only when the policy has been renewed continuously for a specified number of years, which is known as the waiting period. Sumit should ensure that he stays with the same health plan for year after year and misses no premium payments.
Lastly, he should ensure health cover for his parents to help him take care of any unexpected events.
How to plan for multi-decade goals
For goals with a 20-30 year horizon, equity is the asset class with the highest probability of outpacing inflation over the full period. The decision of how much to invest depends on a couple of factors:
- Expected rate of return
- Inflation rate
- Target corpus
Sumit estimates the combined cost of his children's higher education and weddings at Rs 40 lakh in today's terms. At an inflation rate of 6 per cent, the combined cost would swell to Rs 2.3 crores in the next 30 years.
Assuming a return of 12 per cent, an SIP of almost Rs 3,000 in one or two good equity funds should suffice, provided the SIP amount is increased by 10 per cent every year.
How should he structure his portfolio?
Sumit has accumulated around Rs 2.40 lakh in eight decently rated equity funds through SIPs. These are a mix of tax-saving, large-cap, and small-cap funds. He should invest in no more than four to five mutual funds, as too many schemes make it difficult to monitor the portfolio and may result in him losing out on returns in the long run.
Today, investing in a tax-saving fund doesn’t help unless you are in the Old Tax Regime. Otherwise, it is better to stick with flexi-cap funds or a small portion in a good small-cap fund.
Sumit should invest a major portion of his wealth in 2 flexi-cap funds at most and a small portion in a small-cap fund. Flexi-cap funds have the flexibility to invest in companies of all sizes.
This helps the fund manager derive the best possible return. Since Sumit has enough time, he can continue to invest in his small-cap funds. But he should remember that small-cap funds are extremely volatile and may move up or down sharply, even with the slightest movement in the market.
Sumit has also invested Rs 1.40 lakh in stocks. He should continue with them only if he has the required skills and time to invest directly in stocks. Otherwise, he should shift entirely to equity mutual funds.
Keep in mind
- It's always desirable that you start investing early in life, as you will be able to reach your financial goals faster and more comfortably.
- Marriage increases your financial responsibilities. Make changes to your financial plan accordingly.
- Don't rely only on the employer-provided health cover. Buy your own health insurance as well. Take into account the co-payment and sub-limit clauses.
- Four or five funds are enough for optimum diversification.
- Flexi-cap funds are the best category of equity funds to hold as they can invest across companies of all sizes.
- Direct equity investing is fine if you know how to research stocks. Otherwise, go for equity funds.
Also read: You are 22. A Rs 5,000 SIP today builds Rs 5 crore
This article was originally published on April 14, 2021, and last updated on May 07, 2026.
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