Savvy investing, balanced portfolio
An overhaul of the Rijwanis insurance portfolio is the only change required in their financial plan.
AMIT KUMAR
An overhaul of the Rijwanis insurance portfolio is the only change required in their financial plan.
AMIT KUMAR
Its rare to come across an investment
portfolio that makes a financial adviser smile in approval.The Rijwanis plan
comes close.With a high net worth,near-perfect mix of debt and equity,zero
liabilities,and investments aligned with goals,there are few mistakes that mar
their financial plan.The only flaw in this solid portfolio is the lack of risk
coverage,which can be easily rectified,allowing the Rijwanis a smooth financial
ride.
Parag Rijwani,a 30-year-old associate professor with a management school in Ahmedabad,lives with his wife Bhumika,a teacher,his retired parents,and four-yearold son,Hetansh.The couple brings in a monthly income of 80,000 and live in their own house.After accounting for all the expenses,insurance premiums and SIPs,the family is left with no surplus.However,this is not a big cause of worry as the couple has been investing in well-performing mutual funds and has already built a big corpus.This will be instrumental in achieving their goals,which are realistic enough and include their sons education and wedding,retirement,buying a home and a car.
To begin with,the Rijwanis must build a contingency fund to take care of basic expenses in case of temporary loss of income.Pankaaj Maalde of Apnapaisa.com suggests a corpus of 3.78 lakh,which is equal to six months expenses.Apart from this,the couple should keep 3 lakh as medical contingency since Parags father and mother,aged 62 and 55 years,respectively,may need the money for medical care.For this,the existing fixed deposits of 5.77 lakh,savings bank balance of 40,400,HDFC Short term floating fund of 40,000 and surrender value of an LIC traditional plan worth 30,000 shall suffice.
Now,the Rijwanis can focus on their goals,of which a big one is building corpus for buying a new house worth 85 lakh in five years.Considering their comfortable cash flow,Maalde thinks the family can easily move into a new flat within one year.Since their existing house is worth 50 lakh,they will need to take a home loan for 35 lakh,the EMI for which will be about 34,410.This money can come from the 55,000 that the family saves after they end the SIP payments in their existing mutual funds.They can continue to remain invested in these funds,but considering that their goals can be easily achieved with the 16.4 lakh corpus,they do not need to make fresh investment.
The other important goal is to build a corpus of 73 lakh in 14 years for their sons education.For this,they can earmark 11.3 lakh of their existing mutual fund investment (90:10 in equity and debt).Similarly,to build the wedding fund of 54 lakh in 22 years,the Rijwanis can allocate 2.7 lakh (90:10 in equity and gold).The balance 2.1 lakh from mutual fund investment and gold investment of 60,000 can also be allocated towards this goal.
For their retirement,the couple require a corpus of 4.8 crore.Their EPF balance,including future contribution,will give them around 3.36 crore.For the shortfall,they can use the existing mutual fund investment of 2.6 lakh (90:10 in equity and debt).
The couple also want to upgrade their car and buy a new one worth 11 lakh in five years.For this,they can redeem their direct equity portfolio worth 1.2 lakh and start a fresh SIP of 14,200 in a balanced fund since the time period is short.This will help them achieve the target.
If there is one area where the Rijwanis fall short,it is in health and life cover.Considering that the couple has three dependants,the need for adequate insurance must top the list and,hence,Maalde suggests an overhaul of their insurance portfolio.While Parag has one term plan of 25 lakh,for which he pays 8,600 per annum as premium,Bhumika has a traditional plan,which covers her for 7.5 lakh for an annual premium of 15,400.Parags father also has an endowment plan,which offers him a cover of 2 lakh at 6,000 per annum.While his fathers insurance can continue,Maalde suggests Parag buy an online term plan of 50 lakh for 30 years,which will cost him around 7,000 per annum.Bhumika must also get a cover of 40 lakh and surrender her current plan,which will cost them about 4,700 per annum.Their total cost will come to 11,700,which can be funded by the premium they save on surrendering Bhumikas plan.
As for health insurance,their current cover of 1 lakh for Parag,Bhumika and their son,bought from Oriental Insurance for 14,400 per annum,is not enough and also has sub-limits on hospital room rent.So,Maalde suggests they port their policy to Apollo Munich and raise the cover to 3 lakh.They should also buy an individual top-up plan of 5 lakh,with a deductible of 3 lakh.The premium will be around 35,700 per annum.They must also buy an accident disability cover of 50 lakh,a critical illness cover of 50 lakh for Parag,and a 40 lakh accidental disability and critical illness cover for Bhumika.This additional insurance will cost them about 33,000 per annum.These fresh policies,which will cost them 5,725 a month,can be partly funded by the premium of the life cover that Bhumika surrenders.The remaining 5,421 can come from the SIP amounts that the Rijwanis end.
RIJWANIS GOOD MOVES ...
Investing in a mix of equity and debt.
Having a high rate of investment.
Buying real estate at an early stage.
AND THE BAD ONES
Buying inadequate health and life cover.
AND THE BAD ONES
Buying inadequate health and life cover.
Financial plan by Pankaaj Maalde, Head,Financial Planning,apnapaisa.com
