Minor
tweaking,high income to help meet goals
Despite being close to retirement and a heavily skewed portfolio,the Bhaleraos will have a safe financial ride.All they need is a minor shift in the investment pattern,which can be aided by their high savings. SAKINA BABWANI Approaching a financial adviser with barely eight years to go for retirement is not always a sign of despair.At least not where the Bhaleraos are concerned.Despite a skewed portfolio inching heavily towards real estate and debt,the threemember family is financially comfortable given their healthy net worth,a high income and achievable goals. Prasanna Bhalerao,50,lives with his 45-year-old wife Ashwini and an 18-year-old son Tushar in their own home,in Pune.Prasanna,who is employed in the IT sector,takes home a monthly salary of 1.6 lakh,while Ashwini is a home-maker.The couple also has a second home worth 2 crore in Pune,from which they earn a rental income of 36,000 a month.The house they currently live in was bought for 52 lakh in 2004 and is currently valued at 75 lakh.Prasanna had taken a loan for this property and is currently paying an EMI of 41,456.I put in 17 lakh of my own and took a home loan of 35 lakh, he says.
In
fact,nearly 69% of Bhaleraos portfolio comprises real estate,while barely 6%
is in equities.Another 18% is invested in debt instruments,4% in gold and 3%
is being held as cash.The tilt towards real estate is typical of most Indians
who consider it a safe investment that yields high returns over time,while
missing out on the fact that it scores low on liquidity.I did not plan to
invest so much in real estate.Its just the appreciation of the property that
has swelled up its contribution in my portfolio, says Prasanna.
The family also earns 1,500 a month as interest on their fixed deposits,taking the total income to 1.97 lakh.As for the outgo,the family spends 43,000 as monthly household expenses,an insurance premium of 13,651,besides an investment of 27,750 in mutual fund SIPs and PPF.After accounting for all these expenses and investments,the couple is left with a massive monthly surplus of 71,643.Their portfolio may not be perfect,but the family will not have a tough time achieving their goals within the desired time frame. Before we lay out a financial roadmap for the Bhaleraos,let us assess their insurance needs.Given their present income,Pankaaj Maalde of Apnapaisa.comhas arrived at a life cover of 1.5 crore for the family.Currently,they have six traditional life insurance policies that offer a combined cover of 13 lakh.Apart from this,they also have investments worth 2.75 crore in real estate.Hence,they are sufficiently secure and do not need any additional cover.Of the six policies,five can be continued as the future premiums and maturity value are likely to be in line with inflation.However,LIC Jeevan Saral,which has been bought for Tushar can be surrendered as he is a student and does not require life cover.The proceeds can be invested in equity funds instead. The family has scored well on the health insurance front,with individual covers of 5 lakh for each member.Since they have surplus cash,they can consider a top-up of 5 lakh for each member.The additional health cover will cost 5,300 a year,which can be easily funded from the surplus. Maalde is of the opinion that a contingency fund equal to four months expenses must be set aside for any eventuality.The Bhaleraos have 10 lakh in their savings account,which can be used for this purpose.Of this amount,5 lakh should be earmarked for meeting Prasannas mother,Indu Bhaleraos medical expenses.This is because she is 75 years old and it will be difficult to get a health cover for her at this age. The couple can now move to plan for their goals,of which retirement is the top priority.For this,they need 2.65 crore in the next eight years.The EPF and PPF balance,including an additional contribution of 1 lakh per year,will give the Bhaleraos a corpus of 1.09 crore at the time of retirement.Additionally,the 12 lakh investment in gold and one bank fixed deposit of 10 lakh can be allotted towards this goal.However,the FD amount needs to be parked in a liquid fund first and then systematically transferred to a balanced mutual fund through a monthly systematic transfer plan (STP) of 50,000 per month in the next 20 months.The gold and balanced fund will add 49 lakh to the retirement kitty,assuming a growth rate of 12.9%.They still fall short by 1.07 crore,for which they will have to start a monthly SIP of 65,000 in a balanced fund.Assuming a growth rate of 12.9%,the investments will generate the desired amount. For Tushars education,the couple needs 27.2 lakh in four years.To achieve this goal,they need to make a lump-sum investment of 17 lakh in balanced mutual funds.Their current mutual fund investment of 17.3 lakh can be allocated towards this goal by transferring it to the balanced funds through the STP route. The couple also wants to build a corpus of 18.5 lakh in eight years for their sons marriage.They will have to invest a lump sum of 7 lakh in a balanced fund and this amount can come from their fixed deposit.This investment should also be through the STP route,shifting 50,000 every month to a balanced fund. The family also wants to go on a foreign vacation,for which they need 6 lakh in three years.For this,they can invest 6 lakh of their FD in a monthly income plan of a balanced fund,which will generate the desired amount assuming a growth rate of 10%.These suggested changes should take care of all their goals. As for the second home,which has been kept aside for their son,the return on investment is just 2.16% per year.Despite the low return,they can retain it as their current goals are being met without any additional investment.So,this house can be kept aside and used if they face a problem while achieving their goals. RECOMMENDATIONS
MUTUAL
FUNDS
HDFC Prudence or HDFC Balanced Fund,Reliance Regular Savings Fund. Rationale: Considering that the Bhaleraos are nearing retirement,a balanced fund is the safest option for them.The chosen funds have a proven track record and performance history. BHALERAOS GOOD MOVES ... Buying real estate for investment purposes. Having moderate expenses. Investing across all asset classes. AND THE BAD ONES Buying inadequate life insurance. Not earmarking investments for specific goals. Financial plan by Pankaaj Maalde,CFP,Head,Financial Planning,Apnapaisa.com |
