Sachin & Shweta Deshpande, with their sons Shyon (left) and Arya, in Pune.
Skewed portfolio,but goals in sight
The Deshpandes may have invested only in real estate and debt,but appreciation in the realty market has given them a strong platform to achieve all their goals.The key now is to diversify in the right manner.
AMIT KUMAR
The Deshpandes portfolio wouldnt make any financial planner proud.It reeks of indiscretions and drawbacks.It doesnt even adhere to the first principle in any advisers financial arsenal diversification.More than three-fourths of Deshpandes investment is in real estate,while the remaining is in debt and cash.Yet,this family of four has little to worry.This is because luckily for Deshpandes,their one investment has provided them with a base that will help them achieve all their goals with ease.The key will be to tweak their portfolio in time and ensure that the appreciation they have witnessed in real estate is carried on to other avenues.
The Deshpandes may have invested only in real estate and debt,but appreciation in the realty market has given them a strong platform to achieve all their goals.The key now is to diversify in the right manner.
AMIT KUMAR
The Deshpandes portfolio wouldnt make any financial planner proud.It reeks of indiscretions and drawbacks.It doesnt even adhere to the first principle in any advisers financial arsenal diversification.More than three-fourths of Deshpandes investment is in real estate,while the remaining is in debt and cash.Yet,this family of four has little to worry.This is because luckily for Deshpandes,their one investment has provided them with a base that will help them achieve all their goals with ease.The key will be to tweak their portfolio in time and ensure that the appreciation they have witnessed in real estate is carried on to other avenues.
Sachin Deshpande,a 37-year-old manager in an IT firm,has a monthly income of 90,000.He stays in Pune with his 37-year-old wife Shweta,and two sons,Shyon,12,and Arya,3.After meeting all expenses,the family is left with a substantial sum of 22,021.Ask Sachin why he hasnt invested this money in the equity market,and pat comes the reply,I have never understood the way equity and mutual fund investments work.Besides,I have been a little intimidated by the understanding one requires to ensure the investments offer good returns over a period of time. This explains why he hasnt invested a single rupee in stocks or mutual funds till now.However,if he wants to achieve a sizeable return over the next 20 years and achieve his goals,he must change this attitude,says certified financial planner Pankaaj Maalde.
The Deshpandes have two properties.The first one was bought for 45 lakh and is worth 70 lakh today.It has been rented out for a monthly income of 15,000.The other one,in which they currently live,is worth 40 lakh.The rationale for these huge investments is simple,says Deshpande.Its easy to identify the places where real estate is going to boom and the rental value was also attractive, he says.However,what they need to realise is that despite having to pay a monthly EMI of about 28,265 for the next 9.5 years, they get annualised returns of less than 2.5% on the property.This is a very low figure,and in order to achieve their goals,the Deshpandes must sell at least one of these flats and invest the proceeds in a diversified portfolio of equity and balanced funds.Their goals are not out of the ordinarythey plan to save for their two sons education and marriage,for starting a business venture,and of course,for their retirement.
The Deshpandes can easily sell either of their flats,and luckily for them,the sale of will give them enough corpus to pay off their existing home loan of 21.6 lakh and car loan of 3.25 lakh.While they are paying an EMI of 28,265 for the former,their car loan instalment amounts to 11,900 per month.This means that though their monthly rental income will reduce by 15,000,their expenditure will fall by nearly 40,000 per month.This,Maalde says,gives them enough surplus every month to invest for their goals.
If the Deshpandes decide to sell the flat worth 70 lakh,they will have a corpus of 40 lakh after paying off the home loan,the car loan and the brokerage and stamp fees for the sale of the house.However,they will have to wait for another six months to sell the flat
to get the benefit of long-term capital gains.The net balance of around 40 lakh can be invested as a lump sum in funding their goals,along with their other assets,such as fixed deposits ( 5 lakh),EPF withdrawals ( 5 lakh) and savings account balance f 6 lakh.The Deshpandes have 7.5 lakh in savings account,of which 1.5 lakh can be set aside for a contingency fund.This should be invested in a liquid plus fund or a savings-linked fixed deposit account (auto sweep account) and should not be used for any other goal.
Of the total of 56 lakh,16 lakh can be invested in a balanced fund,such as HDFC Prudence and Reliance Regular Savings (Balanced),over the next 18 years,to build a corpus of 1.25 crore,which,along with the existing EPF balance and two of his insurance policies,should suffice for the Deshpandes retirement. Apart from this,10 lakh each can be invested for the childrens education and 5 lakh each for their marriages in mutual funds or balanced funds.
If,on the other hand,they decide to sell the 40 lakh flat,they will be left with a surplus of 10 lakh after paying the loans and charges.This amount,along with their savings account excess after excluding the contingency fund,will give them another 6 lakh.Also,10 lakh will come from fixed deposits and EPF withdrawals,making a total of 26 lakh.Of this,10 lakh can be used for home furnishing and starting an entrepreneurial venture in a years time.The remaining 16 lakh can be invested for the retirement corpus.For the childrens education and marriage,the Deshpandes will need to start SIPs in equity funds,such as HDFC Top 200,Reliance Equity Opportunity Fund and ICICI Pru Dynamic Fund.For their older sons education,they plan to build a corpus of 39.9 lakh which will be required after nine years.This can be achieved by investing 22,563 in the above-mentioned equity funds.Similarly,for their three-year-old son Arya,they should invest 8,409 over the next 18 years to build a corpus of 71.68 lakh.
Like many other families,the Deshpandes have also ended up buying traditional,expensive insurance policies.They have four LIC plans,which cost them about 12,814 per month and provide a cover of 31 lakh.Maalde suggests that they discontinue the two LIC Jeewan Saral policies,which the Deshpandes bought recently and even though it might result in a loss.One of these was bought for Shweta,but its not needed because she is a housewife.Sachin should also consider taking an online term plan worth 1 crore for a 20-year period,which will cost him about 1,200 per month.
Regarding health insurance,the Deshpandes dependence on Sachins company health cover is not advisable as it will be very difficult for them to get a cover after retirement.We suggest that they buy a family floater plan worth 5 lakh to protect the family in case of a medical emergency.They should also buy a top-up plan for 10 lakh and a 25 lakh accident cover for Sachin.These will cost about 2,000 per month.
DESHPANDES GOOD MOVES
Buying a second house as an investment.
Controlling their debt.
Maintaining a healthy contingency fund.
AND THE BAD ONES
Buying expensive traditional life insurance plans.
Not buying sufficient life or health insurance cover.
Having no investment in equity, be it stocks or mutual funds.
RECOMMENDATIONS
EQUITY FUNDS
HDFC Top 200,Reliance Equity Opportunity Fund, ICICI Prudential Dynamic Fund
Advice:
Although the Deshpandes have stayed away from the equity market,it is time they entered it to ensure that they continue to reap high returns on their investments.
BALANCED FUNDS
HDFC Prudence,Reliance Regular Savings (Balanced) and Birla Sun Life 95
Advice:
For lump-sum investments,balanced funds will be the best option as they are safer than equity funds and suit the conservative nature of the Deshpandes.
INSURANCE
Family floater plan
Advice :
Depending on the employer for insurance can be a risky affair,so they must get a comprehensive family floater policy and an accident cover for Sachin.
Buying a second house as an investment.
Controlling their debt.
Maintaining a healthy contingency fund.
AND THE BAD ONES
Buying expensive traditional life insurance plans.
Not buying sufficient life or health insurance cover.
Having no investment in equity, be it stocks or mutual funds.
RECOMMENDATIONS
EQUITY FUNDS
HDFC Top 200,Reliance Equity Opportunity Fund, ICICI Prudential Dynamic Fund
Advice:
Although the Deshpandes have stayed away from the equity market,it is time they entered it to ensure that they continue to reap high returns on their investments.
BALANCED FUNDS
HDFC Prudence,Reliance Regular Savings (Balanced) and Birla Sun Life 95
Advice:
For lump-sum investments,balanced funds will be the best option as they are safer than equity funds and suit the conservative nature of the Deshpandes.
INSURANCE
Family floater plan
Advice :
Depending on the employer for insurance can be a risky affair,so they must get a comprehensive family floater policy and an accident cover for Sachin.
Financial plan by Pankaaj Maalde,Certified Financial Planner
