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I pay an annual premium of Rs 50,000 towards insurance policies, and invest Rs 1,000 per month in a fund. But now, I have realised that my portfolio is not appropriate. What should I do?
- Abhinav Mishra

My age is 24 years and I am earning just under Rs 3 lakh per annum. I am saving for the long-term and so far have invested in a few insurance policies and a mutual fund. I have three insurance policies (two with private insurers) for which I pay an annual premium totaling up to about Rs 50,000. I have also created an SIP of Rs 1,000 per month in the UTI Dynamic Equity Fund. After reading your magazine for the last few months, I have realised that my portfolio is not appropriate. Please suggest what should I do?
- Abhinav Mishra

You have committed the common error of treating life insurance as an investment. As we always recommend, you should keep your investment and insurance needs separate. Term insurance is the best form of insurance and since it is also the cheapest, you can get a reasonably high insurance cover at a fairly low premium as compared to the other insurance products. To illustrate, at your age, a term cover of Rs 10 lakh will cost just about Rs 2,500-Rs 3,000 per annum.

We would advice to rework your financial plan in the following manner. First decide how much insurance do you need, based upon your financial liabilities. In other words, determine what would be an adequate amount that you would like to leave with your family in case of any eventuality. Buy a term insurance policy with a sum assured equal to this amount. Once you know how much insurance premium you would be paying every year, allocate the remaining funds available for investment to various instruments like mutual funds, NSC, PPF etc according to your risk appetite and time horizon of investment. If you have time by your side and can bear with volatility, invest more in equity mutual funds. But if you want a higher degree of safety, then instruments like NSC and PPF should dominate your portfolio.

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