Don’t Use Savings For Lifestyle Expenses

Queries

Prashant Bhaskar email

I am planning a trip to Norway next year. For this, I plan to save Rs 2 lakh by year-end, but I may fall short by Rs 1-2 lakh. I’m considering a travel loan, but it might get rejected due to no credit history. Should I redeem my mutual fund investments in large- and small-cap funds to cover the gap?

As a matter of financial prudence, avoid using up savings or investments on lifestyle expenses like travel unless you have enough emergency funds for near-term goals. Before taking a trip that may strain your finances or lead to debt, reassess your plans or consider a more affordable option.

If you’ve decided that you need a loan, you may consider a credit card or a loan against securities (LAS). Both are generally easier to access, but a LAS is typically cheaper than an unsecured personal loan. Lenders usually offer up to 50 per cent of the value of your mutual funds or shares at lower interest rates compared to personal loans or credit cards.

If this isn’t feasible, redeeming mutual fund investments is another option, though not ideal. It should be considered only as a last resort, as it can impact your long-term financial goals and investment growth.

Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution

Dipika Patel email

I am 25 years old and recently started working. What will be the adequate life and health insurance coverage for me?

It’s commendable that you are planing finances at a young age. Health insurance is essential, especially if your employer doesn’t provide one or offers limited coverage. Buying life insurance early can also help lock in lower premiums for the long term. The appropriate sum assured for both life and health insurance depends on multiple factors.

For life insurance, it includes the number of financial dependents, your age, income, lifestyle, and any existing liabilities like loans. A general rule is to opt for a life cover that is 15-20 times your annual income. It’s best to go for a pure term plan from a reputed insurer with a high claim settlement ratio.

Health insurance needs depend on your age, current health, job profile, and family medical history. If there is a history of chronic or hereditary illnesses, consider a higher sum insured. A minimum coverage of `10 lakh is advisable, though your specific needs may require more. Choose an insurer with minimal exclusions, sub-limits, and a strong settlement record.

Deepak Kumar Jain, Founder and CEO, InvestManager

Nikhil Bhatia email

I want to invest in commercial property. Should I go for real estate investment trusts (Reits), infrastructure investment trusts (InvITs) or fractional ownership?

All three modes offer distinct ways to invest in commercial property. Reits are traded on stock exchanges. They allow easy entry and exit with relatively low investment. Managed by professionals, Reits offer diversification, regular dividend, and potential capital appreciation, and are best suited for passive investors. There are risks too though.

InvITs focus on infrastructure assets such as highways and renewable energy projects. They offer a stable, usage-based income. While they provide diversification and steady returns, liquidity is moderate and returns can be affected by regulatory and operational risks.

Fractional ownership involves co-investing with others, usually within the same city. It offers more control over asset selection and has the potential to give higher returns. However, it requires a higher investment, longer holding period, and has risks of low liquidity and disputes among co-owners. So, decide according to your requirement.

Anand Moorthy, Co-founder and CBO, Square Yards