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Good
asset allocation to ease financial journey
The right exposure to various asset classes and an early start will help the Tiwaris reach their goals. AMIT KUMAR
If you
are in your 30s and still havent identified your financial goals,be prepared
for roadblocks.For one,you may not be able to amass the corpus you require if
you dont have a time horizon in place.So,its a good thing that the Tiwaris
have sought professional advice at the right time.Since they have more than
27 years left for retirement,the financial adviser can help them identify
their goals and lay out a plan so that they can start investing and
allocating in the right manner.
Om Prakash Tiwari,a 33-year-old CRPF employee, lives with his wife Deepti,28,and son Devansh,2,in Raipur. Om brings in a monthly income of 45,000,of which 13,000 goes out as household expenses. The couple also invests 5,500 a month through SIPs in 10 mutual funds, and pays an insurance premium of 1,019 a month. They also bought a piece of land in Raipur last year, and as per the arrangement with the seller, they are paying him in monthly instalments of 12,750,which will end next year. This leaves them with a surplus of 7,731 a month. This is not quite enough for investing for all their goals, which include amassing funds for a contingency fund, buying a house, their sons education, and their own retirement.Hence, the Tiwaris need to use it optimally to ensure greater financial stability.
To
start with, the family must address its insurance needs since it has been
caught short on both life and health insurance front. Currently, Om has three
insurance policies, which give him a collective cover of only 2.5 lakh for a
monthly premium of 1,019.The Tiwaris need to understand that while financial
planning and investments are necessary, they can be in a soup in case of a
financial emergency. Pankaaj Maalde of Apnapaisa.com suggests Om immediately
buy an online term plan of 60 lakh for 25 years, and this will cost 6,500 per
annum.
The couple also depends solely on the cover provided by Oms employers for health insurance.According to Maalde, this cover will end when Om retires and buying a fresh one after the age of 60 will be difficult.So, he recommends an individual cover of 3 lakh for each of the three family members. They must also take a top up cover of 5 lakh.This will cost the couple 13,000 per annum.Besides, they should buy critical illness and disability covers of 25 lakh each, which will cost them 10,200 per annum. The couple also needs to set up a contingency fund for emergencies, which should be equivalent to three months expenses. The couple has a cash balance of 1.2 lakh, which should be invested in a liquid fund for this goal. The next goal for the Tiwaris is to buy a house worth 25 lakh in Raipur by next year.For this, they can sell the land that they bought last year and which is currently valued at 6 lakh. This can be used to make the down payment for the house. As for the remaining amount,the couple can take a home loan. Considering a tenure of 25 years and an interest rate of 10%,they will need to pay 18,000 per month as EMI from next year. Since their EMI of 12,750 will end next year, their surplus will rise to 20,481,which can be used to fund the EMI, and the deficit of 1,488 can be made up with the increase in salary. The couple also wants to save 34 lakh after 16 years for their sons education. For this goal, they can allocate their existing investments in DSP Blackrock Equity fund and ICICI Pru Focused Bluechip fund. From the current monthly investment of 5,500 in SIPs, they need to allocate 4,000 per month for this goal.Of this investment amount, they are advised to continue with the SIPs of 2,000 in ICICI Pru Focused Bluechip, while the remaining SIPs worth 2,000,which are being invested in DSP BlackRock Equity, should be switched to Reliance Equity Opportunity for getting better returns. The couples investment in mutual funds will also reap rich rewards for their most important goalretirement. They want to save 4.6 crore for their retirement after 27 years.Of this,1.86 crore will be contributed by the monthly contribution of 8,500 (including employers portion) to the EPF. Another 1.72 crore will come from their investment in HDFC Equity fund and LIC proceeds of 5 lakh, which shall,in turn, be invested in equity funds. The current portfolio with 10 mutual funds is not desirable and even the most diligent investor will find it difficult to track them.Om explains how he ended up with so many funds.As and when I get some positive news on a fund,I try investing in it. However,the Tiwaris should now try to prune the folio to 3-4 funds. Since they have eight HDFC funds, they should consolidate all their existing investments in HDFC Equity fund. This should be done after all the existing investments have completed a year in order to avoid the exit loads. For the shortfall of 92 lakh, the couple needs to allocate 1,500 of their SIPs for the goal and start investing another 1,000 per month in an equity mutual fund. Financial plan by Pankaaj Maalde,CFP,www.apnapaisa.com |
