For goals beyond seven years, you must open a PPF account and invest in it each year.

Q. I am a 25-year-old government employee. My monthly earnings are about ₹ 30,000. I’m a bachelor; how much should I save every month? I am yet to start financial planning. I have some interest in the stock market.

Aarati Krishnan replies:

A. You would be right to start your investments with a financial plan. We would advise first setting aside some money, about 6 months’ worth of expenses, in a bank deposit towards any emergencies, including medical ones for you or your dependents.

Do get a health insurance plan even if you have one from your employer. If you have parents depending on you, buy a pure term life insurance policy too, so that their interests can be taken care of, in the event of any unforeseen circumstances.

Having done these things, you can start on your financial plan by listing out your goals over the next few years. If you have plans to make any big purchase, travel, buy a car or home or marry, you will need to save towards those goals. Ideally, map out the time horizon over which you would like to reach each goal. For goals that are less than three years away, bank recurring deposits and FDs, post office deposits and short-term debt mutual funds are decent options. For goals three to seven years away, you can consider post office schemes such as NSC, apart from GOI floating rate taxable bonds.

For goals beyond seven years, you must open a PPF account and invest in it each year. You can also start investing in SIPs of equity funds. To begin with start them in index funds tracking the Nifty100 or Nifty500 index. You should be looking to save 15% of your salary to start with, and raise the amount to 25-30% as your income improves over the years. Invest each month before you spend so that savings becomes a habit.

Q. I am a 26-year-old student. After deducting all my monthly expenses, I am left with about ₹ 2,000 to ₹ 5,000 every month. Is there any investment plan that suits a student’s budget? I have heard a lot about SIPs but haven’t tried them out yet. Should I go for only SIPs or are there any other ways to invest smaller amounts? If so, kindly advise me as to when and how to invest?

A. It is very creditable indeed that you are thinking of saving and investing even as a student. The amount of ₹ 2,000 to ₹ 5,000 you mention is certainly a substantial amount to begin your investing journey with.

SIPs or systematic investment plans, which let you invest every month in mutual funds, are a good option if you are saving towards goals that are more than five to seven years away and can afford to take risks to your principal. Mutual funds invest your money in market instruments such as shares and bonds whose prices can swing up and down in the short run.

If such volatility would make you uncomfortable and if you prefer predictable returns, consider post office or bank recurring deposits which will allow you to invest every month. If you are 18, you can also open a Public Provident Fund account with the post office and begin saving in it every year. The scheme offers tax-free interest which accumulates in the account until you withdraw it.

However, this is 15-year scheme and you cannot withdraw from it whenever you like. If you don’t mind volatility, but would like to withdraw money at a time of your choice, you can explore SIPs in debt or hybrid mutual funds. Use the services of a qualified adviser to choose funds suitable to you.

Q. I am a senior citizen and state government pensioner. My monthly pension is ₹ 37,000. For the past few years, income tax was deducted and form 16 was issued and income tax returns were filed. But now, as the income does not exceed the maximum limit chargeable to tax, no tax was deducted by the treasury. In such circumstances, is it possible to discontinue the filing of ITR?

N. Sree Kanth replies:

A. Under Section 139 (1) of the Income Tax Act, an individual has to file their ITR if the total income exceeds the maximum amount not chargeable to tax. As your income is exceeding the basic exemption limits set for senior citizens, you have to file the respective ITR applicable to you. However, you may claim rebate under Section 87A as your income does not exceed ₹ 5 lakh (considering the pension income as the only source of income) which will result in your tax liability being zero.

(N. Sree Kanth is partner, GSS & Associates, Chartered Accountants, Chennai)

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