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Plan
overhaul must for achieving goals
The Varmas will have to generate more surplus by realigning their investments and risk coverage. SAKINA BABWANI While investing dictums tend to change with the altering economic scenario,most Indians have brazenly stuck to one over the past several years.Investing in real estate has clearly triumphed over all other avenues irrespective of the market conditions.So,its no surprise to come across Rajesh Varmas portfolio,which has a whopping 85% invested in real estate,none in equity,a paltry 1% in cash,and the rest in debt.The 39-year-old Rajesh,who works with an IT company in Pune,explains the lopsided nature of his investments: I was not sure where exactly I needed to invest,so I chose insurance policies and real estate.However,I realise I need to diversify to meet my goals. Realising the skewed nature of their portfolio,Rajesh and his 37-year-old wife Suruchi,have zeroed in on only two important goalsretirement and their 11-year-old daughter Aashanshas education. Rajesh draws a monthly salary of 42,000,while Suruchi earns 28,000 as a teacher.They earn an additional 3,000 as interest income.The couple spends about 19,000 on household expenses,while 12,000 goes as rent.Aashanshas education expenses amount to 3,000 a month and 28,542 is spent on servicing two home loans.The Varmas had bought a house in Pune in 2010 by taking a loan of 22.4 lakh for 20 years,for which they are paying an EMI of 21,542.Another house was bought in Jaipur,for which they pay an EMI of 7,000,and which is currently valued at 7.5 lakh.Besides these houses,the Varmas also own a plot in Jaipur.After including the monthly insurance premium of 10,110,the couple is left with a measly surplus of 348.Since this amount is meagre,the couple must rework the expenses to generate a higher surplus. To increase their surplus,the couple can cut down on their insurance premium as they have too many policies that do not serve the purpose for which they have been bought.Currently,Rajesh has three traditional plans,one Ulip and two term plans,which cost him 5,689 every month.Rajesh can continue with his term plans,which offer him a combined cover of 65 lakh.The returns on LIC Jeevan Anand are likely to beat inflation,hence,this policy can also be continued.However,LIC Ulip-Wealth Plus,LIC Money Back and Birla Sun Life Dream Plan must be discontinued as these do not provide him with adequate cover and are too expensive.Suruchi has one term plan of 60 lakh,four traditional plans,as well as two Ulips,which offer a combined cover of just 5.4 lakh.Suruchi must surrender her Ulips as they are not performing well,but she can continue with the traditional policies.After surrendering all these,the couple will save 3,770 a month on insurance premium. This amount should be redirected towards the payment of health insurance premium.At present,the Varmas rely on the health policy from New India Assurance Company,which offers a 2 lakh cover to each family member and costs them 716 per month.Maalde suggests that they shift from this policy to Apollo Munichs Easy Health Standard 45 days before the renewal of their current health plan,since it is cheaper.They also need to increase the cover to 3 lakh for each member.Additionally,they must buy an individual top-up health plan of 5 lakh,with a deductible of 3 lakh.These health insurance plans will cost them 1,195 a month.Also,Maalde advises them to buy an accident disability cover worth 50 lakh and a critical illness cover of 50 lakh,which will cost 2,250 a month.After accounting for the fresh health covers and surrendering the life plans,the Varmas will save 1,041,which should be invested for their goals. The Varmas can also generate extra funds when they move into their new home next year,which will free 12,000 of rent that they currently pay.They can also save 7,000 of their second home loan EMI by selling the Jaipur house for 7.5 lakh.After rearranging their expenses,they will be left with a monthly surplus of 20,041,which should be used for financing their goals. To meet their daughters education expenses,the Varmas need 8.57 lakh in seven years.For this,they will have to start a monthly SIP of 8,000 in a balanced mutual fund,starting this year.This can come from the enhanced surplus of 1,041 and 7,000 generated by selling the Jaipur plot.Assuming a growth rate of 12.9%,the investment is expected to generate the desired corpus within the set time frame. The Varmas also wants to build a corpus of 3 crore in 21 years for retirement.Rajeshs PPF balance and insurance policies will contribute 5 lakh each to the goal.The Jaipur plot is expected to fetch 1.9 crore after 21 years.To meet the shortfall,Varma should start a monthly SIP of 9,000 in balanced mutual funds.However,since they will save on home rent only from the next year, they will have to postpone this goal by one year. VARMAS GOOD MOVES ... Investing in real estate at an early stage in life.
Buying
adequate life insurance through term plans.
AND THE BAD ONES Buying inadequate health cover.
Having
no investments in equity.
Financial plan by Pankaaj Maalde, Head – Financial Planning, ApnaPaisa.com |
