Ishita Sinha (name changed) recalls always having felt a sense of discomfort and even a tinge of guilt as a child when she used to hear her parents worry about saving enough money for wedding. “I could never reconcile with the idea of them having to spend so much money that they would have earned after toiling with decades just for a couple of ceremonies. It just didn’t feel right and that is why when I became financially independent, I created a separate fund because I knew that I wouldn’t be okay with not pitching in anything for my own wedding.”
Many young Indians are no longer enamoured by the idea of diverting a chunk of their parents’ savings and investments corpus that they may have built painstakingly over decades for big fat Indian weddings. More and more people of this demographic are warming up to the idea of financing their wedding costs, even if not fully but at least partially. Sinha belongs to this cohort and was successfully able to bear the brunt of almost half her wedding costs.
According to a report published in The Economic Times, the Indian wedding industry is about ₹1, 00,000 crore and an ASSOCHAM report states that it is growing at a rate of 25% to 30 %. Weddings are a financial goal in a league of their own – planning and executing are emotionally-charged processes and while the definition and budget of a dream wedding may differ but the importance of solid financial planning is the gospel truth.
Counting the uninvited guest
Formulating wedding expenses would require you to get into a deep-dive of the kind of wedding you have envisaged. While that may not be possible if you have no immediate plans of getting married and are not expecting the tinkering of wedding bells in the next 3-5 years, implementing a financial strategy for a wedding will require you to ponder over a few questions. How much can you set aside comfortably for this goal without compromising on your other goals? What proportion of the expenses do you want to shoulder and how much can your parents spend?
Your answers to these questions also need to be mapped with inflation. Catering, venue, décor and costs of other non-negotiables for wedding celebrations will climb every year and your plan needs to be aligned with the galloping costs. Sinha says, “The cost of a wedding can be anywhere between a few laksh to a few crores. It may be difficult to have a clear picture of the kind of wedding you would want to have especially if the search for the right partner is a work in progress but you can still ideate an estimate of the expenditure that you and your family can afford together. And that estimate has to be drawn keeping inflation in mind else you may fall short of funds.”
Tapping into the power of mutual funds
Once a few pieces of the puzzle are in place, you can start investing for your wedding and the best way to do that would be to invest in mutual funds through Systematic Investment Plans. Unlike retirement, you cannot pinpoint a date as to when you would get married and because of that investment instruments with lock-in periods may be tricky. Money dumped in a five-year FD would be of little use if you end up walking down the aisle in the next three years.
Given that the time horizon in this case cannot be more than 5-7 years, debt mutual funds and large cap equity funds or diversified funds with a dominant large cap element are better suited for this purpose. Large Cap Equity Mutual fund will have less risk involved. They are more likely to generate more stable returns and high rated debt mutual funds can balance out the risks of the equity component.
Mutual funds are also a better bet than seeking wedding loans. Consider this: a monthly SIP of ₹10,000 at an expected return rate of 15 percent per annum will amount to ₹8,96,817 in five years. A loan of the same amount at 7.5% interest rate for a tenure of five years will require you to pay EMIs of ₹17,864 and the total amount that you will have to repay is ₹10,71,841. Even if you can start SIPs with small amounts and to up your investments from time to time if you have extra cash, it will be a better choice for your overall financial health than taking a loan rout. What’s more you can start an SIP with as little as ₹500 so you do not have to fret over not having enough capital to start investing.
• Invest in tax saving instruments like ELSS to reduce your tax liabilities. That can amp up your savings significantly and provide more room for you to invest for your wedding. However, do understand that they have a lock-in period of 3 years.
• Unless you start saving early, you may have trouble meeting your desired goals for funding your own wedding. While a wedding date may not have appeared on your calendar, the process of saving can start right now so that you can commence investing.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.