Skewed portfolio can endanger goals
Investing heavily in real estate and debt means that the Sharmas may have to put some of their important goals on hold unless their income level rises significantly in the next few years. AMIT KUMAR Afinancial plan can come as a rude awakening.Even though you believe you have covered all bases,the plan may reveal chinks you werent even aware of.This is the reason professional help is recommended when it comes to chalking out a financial journey.The Sharmas have done well to take help at an early stage.For,though they think they have saved well and invested right,their portfolio is highly skewed.So,while appropriate remedial measures will help the Sharmas achieve some of their goals,they may have to wait for the income to increase before they can fulfil them all. Dinesh Sharma,32,works with Infosys,and stays with his wife Deepti,31,and 3-year-old daughter Aarushi,in Bangalore.He brings in a monthly income of 65,000,and after accounting for household expenses,insurance premium,and a home loan EMI,the family is left with a measly surplus of 5,396.The reason for the low investible income is not extravagance,but the fact that almost half the salary,30,500,flows out as EMI for the house.I want to close the loan as soon as possible and this is reason I got the EMI increased, says Dinesh.This is not necessarily a smart move.It means that over the next 8-9 years,most of the investible surplus will be spent on a single asset classreal estate.So,Pankaaj Maalde,chief financial planner of Apnapaisa.com,suggests that the family reduce the EMI to 21,000 by opting for a fresh loan with a tenure of 20 years.This,along with a reduced expenditure on insurance,will give them a surplus of 16,500 to invest. Before beginning with fresh investments,the Sharmas must learn how to protect their existing ones.Currently,they have three traditional,expensive insurance policies and one term plan from the LIC,which give Dinesh a collective cover of 33 lakh for a monthly premium of 3,854.These policies were bought when I started working and had little knowledge of investment avenues, says Dinesh.However,he has realised his mistake and intends to surrender these plans.Even the LIC term plan is an expensive option and Maalde suggests that the Sharmas buy an online term plan of 1 crore.This will cost them around 12,000 per annum.However,according to Maalde,they can continue with their LIC endowment policy as part of their debt investment. The Sharmas have shown little interest in health insurance too.They only have a family floater plan worth 2 lakh provided by Dineshs employer.This has proved useful as it has taken care of all our medical bills so far, says Dinesh.However,we suggest that they buy a health cover of their own.This is not only to ensure that the family isnt without a cover if Dinesh switches jobs,but also because buying a health policy at later stage of life will prove difficult and expensive.Leaving the purchase for older age also increases the chances of being diagnosed with an illness,which may not entitle you to a mediclaim or or may be covered after a long waiting period.Maalde suggests a family floater mediclaim cover of 5 lakh.This will cost them nearly 12,000 per annum.Dinesh must also buy a critical illness cover worth 50 lakh and an accidental disability plan of 50 lakh when his income increases in the future.Based on the above recommendations,Dineshs life insurance cost will come down,while the expenditure on health insurance will rise,but the Sharmas will still save more,adding to their surplus income. Like most parents,the Sharmas want to save for their daughter and a future childs education.For building an education fund of 80 lakh for Aarushis higher education after 18 years,the couple needs to start an SIP of 9,000 in a balanced fund.Similarly,to build a corpus of 1 crore that they want to build for their future childs education after 24 years,they need to start an SIP of 7,500,again in a balanced fund. The current income level and high EMI mean that it is rather difficult for the couple to save for any other goal.They are left with no surplus to invest even for an important goalretirement.The couple requires a nest egg of 4.5 crore for their sunset years.Their monthly EPF contribution of 4,200 (including the employers portion) will give them about 66 lakh.For the remaining amount of 3.84 crore,they need to invest through a SIP of 19,000,with an asset allocation of 90% in equity and 10% in gold.Since they have no additional income to invest for this purpose,they can start doing so once the income increases or after the home loan is fully paid.Dinesh must also consider postponing his retirement to 60 years instead of the current plan of doing so at 55.Once the loan is fully paid,a possible reverse mortgage on the existing house can also meet a part of the retirement needs. Similarly,for the plan to save 81 lakh for Aarushis marriage after 22 years,the couple needs to invest 4,700 per month in a combination of equity and gold,and 3,800 per month to build a corpus of 1 crore for the future childs marriage after 25 years.Both these goals have to be put on hold for the time being due to lack of resources. The Sharmas must also focus on building a contingency fund to take care of emergencies or temporary loss of income.This fund should be invested in liquid plus fund or a savingslinked fixed deposit account.This amount should not be used for any other goal.As they currently do not have any liquid asset to allocate for this purpose,they should sell their gold investment and convert it to fixed deposit and allocate to this goal. For the Sharmas,building a big asset like real estate has compromised their other goals.Unless Dineshs income rises substantially over the next few years,the family may well have to prepare itself for a tough retired life. SHARMAS GOOD MOVES ... Buying a house for self use at an early age.Having limited expenses. AND THE BAD ONES Having no exposure to equity.Buying traditional,expensive insurance policies.Not buying adequate health,life insurance.Not maintaining a contingency fund. Financial plan by Pankaaj Maalde,Head,Financial Planning,apnapaisa.com |
