Your financial queries answered

INVESTING

I am planning to quit my job of 8 years and start a business. I have already acquired the necessary seed capital through a loan and plan to use part of my savings as well. Should I withdraw the money from the Employees' Provident Fund (EPF) account and invest it in some other avenue or is it better to hold onto it for a few years? Shrihari Udupa, Bangalore
You can consider withdrawing the amount, since an EPF account will stop generating returns after being idle for over 3 years. This could be a sizeable corpus that you have and therefore invest it wisely with appropriate asset allocation. We suggest that you diversify your investments and not invest in a single avenue, thus spreading the risk. These investments could be used to hedge the risk you might be taking with your new venture. This is especially true if you have a family, with children's education and other such expenses to take care of during the start-up period.

I have about Rs 80,000 invested in equities (some investments being up to 2 years old) and a single health insurance plan. I don't have investments in mutual funds. I am 27, single and am self-employed, earning about Rs 50,000 a month. Am I taking too much of a risk or can I continue relying on equities to build my savings? -Sanjay Singh, New Delhi
Ideally, you should diversify your portfolio such that you optimise on returns. Having a major part of your holding in equities is a huge risk you carry considering that you do not have a steady stream of income (being self-employed). You could also consider parking some funds in liquid avenues, which can help cater to any emergencies.

I have just moved to a new job with a considerable increase (about 50%) in salary. My expenses remain about the same. Should I increase my investments in mutual funds or equities immediately? What percentage of the raise can I invest without taking too much of a risk as I am already in my mid-30's? -Premjish Achari, Kolkata
For a novice investor, mutual funds are the ideal way to invest in equities. Direct equity is for those individuals who have ample knowledge and expertise along with time at hand to follow the markets and evaluate the conditions. As a thumb-rule, you could hold about 60% of your assets in equity-related instruments without considering it a great risk.

FUND TYPE	LIQUIDITY	RISK	LOADS
Liquid Funds	Very High - within 24 hours	Very Low	Entry and exit - Nil
Floating Rate Funds	Very High -within 24 hours	Very Low	LT, exit-0.25-0.5% (3 to 6 mnths)
Short Term/Bond Funds	Very High - within 24 hours	Credit/interest rate risk	Exit-0.25%, (15 days to 6 mnths)
Income/Gilt Funds	Three business days	Credit/interest rate risk	Exit-0.25%, (15 days to 6 mnths)
Monthly Income Option	Three business days	Moderate risk	Exit-0.5%, (6 mnths)

I wanted to know about the various kinds of debt funds, their maturity periods and tax liabilities for each category. Is it the right time to invest in them, especially since the markets have been volatile? I am 27, unmarried and earn Rs 30,000 per month, what would be my debt fund to equity investment ratio? -Tapasya Thapa, New Delhi
Given here is an overview of debt funds on offer. You can consider investing in gilt or bond funds, considering the increasing interest rate scenario. On the other hand, monthly income plans could also be an interesting option considering its equity exposure. Given your age and risk profile, we suggest you to invest about 70% of monthly surplus in equities. You should also take note of the liquidity factor and exit loads for each type of fund.

INSURANCE

I am travelling abroad for a 2-month period on a personal trip with my family. I plan to purchase a travel insurance cover for the entire family. Now, if I am required to use the cover for a medical emergency, do I get cashless facility abroad or would I have to wait till I return to India for getting my reimbursement? -Abison Paul, Chennai
The availability of cashless facility on a travel policy may vary depending on the insurer and its hospital network in a particular country. In most cases, cashless facility will be available. The details would be provided to the customer at the time of choosing a particular plan by the insurer or the Third Party Administrator (TPA). It is advisable to carry details such as toll-free numbers of the insurance company or the TPA and the policy schedule itself while travelling.

I am 32 years old. I presently have a Rs 1 lakh health insurance cover from a public sector company. I now plan to increase my cover to at least Rs 3 lakh. Is it better to stay with the same company or should I look for a new insurer, including private insurers, for a new cover? -Raj Sarkar, Pune
If you are satisfied with the services of your existing insurer, you may continue with your existing insurer and get a renewal bonus in the form of a discount or an increase in the sum insured at no additional cost. Depending upon the underwriting guidelines of your insurer, you may choose to increase the sum insured at the time of renewal of your policy.

Pre-existing conditions and renewal benefits will be applicable to the extent of your existing sum insured value only. However, we would advise you to consider an insurer (existing or new) that provides transparent benefits and offers a plan that suits your requirements. It is also imperative to choose a health insurance plan that has no disease-specific or expenditure-specific sub-limits to avoid such situations and offer you a lifelong renewal.

Anil Rego, CEO, Right Horizons, will tackle financial planning issues and Antony Jacob, CEO, Apollo Munich, will deal with health insurance queries. Log on to www.businesstoday.intoday. in to submit your questions.

HOME LOAN

I already have a housing loan of Rs 20 lakh, which I contracted at a fixed rate of 8% in 2004 for 20 years. I am now planning to take a top-up loan of Rs 5 lakh for home improvement. Will I keep paying the same rate on my earlier loan and a new rate for the new loan or will my entire loan be priced afresh by the lender? -Keerthi Mohan, New Delhi
You made a great decision of taking a loan at a fixed rate of 8%. Since you are now planning to take a loan for home improvement, I suggest you go in for a home improvement loan rather than a top-up loan. There are several advantages for home improvement loans-the interest rate is lower, the amount can be higher, there are tax benefits on interest payments and, yes, this loan will be treated as a new loan and the current rates will apply only to this one. Your earlier loan will continue at a fixed rate of 8%.

I had taken a housing loan of Rs 30 lakh from a bank three years ago. The same bank is asking me to take a pre-approved personal loan of Rs 15 lakh, where my house will act as collateral. I am confused since I need the money. Is it advisable to take a personal loan against property? -Prem Rawat, Jaipur
Ideally, I would recommend you go for a topup loan/loan against property (LAP) as, generally, interest rates would be lower than for a personal loan. Moreover, the term available for a personal loan will be shorter as compared with a top-up or LAP. The lower the term, the higher will be the EMI, which you may not be comfortable paying as you are already servicing a loan.

Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.