YOU are married with young children and your spouse is also working. Your expenses are rising suddenly and you may pile on credit card debts. But since you have two sources of income, that leaves you with sufficient surplus for investment, after meeting all your spending needs.

You probably are planning to take a home loan soon and maybe already have a car loan. Given your income status, you are probably in a position to take risks even at this phase.

Needs: Your immediate short term need is to save up enough to make the down payment on your home loan. Moreover, you also need to consider buying term insurance, or if you already have it, to increase the cover.

In the medium term, you must save up for your children’s education and also build an emergency corpus for medical needs. You must buy medical insurance for your family to cover medical costs.

In the long-term, your biggest goal is your own retirement. It is the age of nuclear families and no one except yourself will be paying for your retired years. You need to build up a sufficiently large corpus to enable you to continue to live the lifestyle that you did while you were working. Moreover, with inflation and increasing medical costs, your retirement is not going to be a cheap affair.

Choice of investments

• Short term (less than 5 years): In the short term, you need to invest in instruments that provide liquidity and carry low risk. Investing in equities is not a good option for the short term since returns in equities are highly volatile and you run the risk of losing your money. Instead, for the short term, liquid mutual funds, bank fixed deposits and short term bonds are a good option.

• Medium term (5-10 years): In the medium term, you may not require liquidity, but at the same time, you cannot take big risks either. Hence, you can look at debt instruments that offer a slightly longer lock-in and hence come with higher returns too. For instance, National Savings Certifications (NSC), Kisan Vikas Patra (KVP), RBI bonds make for good investments as they provide returns of 8 per cent and have a lock-in of 6-8 years. You may also look at debt or even balanced mutual funds.

• Long-term (more than 10 years): Your long-term needs are at least 10 years away. That gives you the chance to benefit from equities, which, although risky in the short term, are known to provide great returns in the long term. So equity mutual funds would be a good option to consider here.

Read:

• Catch 'em young
• Give lessons with pocket money
• Piggy bank or real bank account: What to give your kid?

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