Need to rejig portfolio to raise surplus for goals
The Mahajans must give up traditional insurance plans and reduce their EMI to finance all their goals.
AMIT KUMAR
The Mahajans must give up traditional insurance plans and reduce their EMI to finance all their goals.
AMIT KUMAR
MAHAJANS GOOD MOVES ...
Buying a home early in life. Having simple, achievable financial goals.
AND THE BAD ONES
Not having adequate health and life insurance .Not building a contingency fund.
Buying a home early in life. Having simple, achievable financial goals.
AND THE BAD ONES
Not having adequate health and life insurance .Not building a contingency fund.
When the Mahajans sent us an e-mail a few weeks ago,we were surprised.Need help
with family finances very badly, said the subject line.While every family that
approaches us needs help,the Mahajans appeared desperate.As it happens,their
fear was misplaced.The couple has a reasonably high income and net worth,and
plenty of time to achieve their goals.Though there are gaps in
planning,including insufficient insurance,careful realignment should see them
achieving all their goals with ease.
Deepak Mahajan,a 32-year-old engineer,lives with his wife Jyothi,a 30-year-old
homemaker,and 4-year-old daughter,Archisa,in Bangalore.Deepak brings in a
monthly income of 75,000,and after accounting for all the expenses,he is left
with a surplus of 5,123.The low rate of savings can be attributed to the
sizeable home loan EMI of 31,255.The loan was taken in 2009 and the current
outstanding amount is 21 lakh to be repaid in the next 12 years.However,the
Mahajans will have to retune the loan repayment to increase their surplus so
that they can achieve their goals.They will also need to rejig their insurance
portfolio,where they have made the typical mistake of combining insurance with
investment.
As for the loan,the couple is paying an interest of 11.65%,which is too high.Since floating rates are currently available at 10% for loans below 30 lakh,they should shift the home loan to another lender.They can also increase the tenure of the loan from 12 to 20 years,which will reduce their EMI from 31,255 to 20,615 and add to the investible surplus.
The couple has five insurance plans,for which they pay an annual premium of 72,500.However,in return they get an abysmal cover of 9 lakh for Deepak,and 3 lakh for Jyothi.Since the returns on two of these plansLIC Moneyback and Jeevan Anandare likely to beat inflation,the Mahajans can continue with these.However,their Ulip,ICICI Premier Life Gold,and Aviva Life Saver Super,which costs 10,000 per month for a cover of 6 lakh,are too expensive and should be surrendered,according to Pankaaj Maalde,Chief Financial Planner,apnapaisa.com.He also advises them to discontinue the LIC New Beema Kiran.Instead,the couple should purchase an online term plan of 1 crore,which will cost about 1,100 per month.
Like most working people,the Mahajans depend on the health cover provided by Deepaks employer.This is worth 2 lakh for each family member.However,Maalde recommends that they buy individual mediclaim plans of 3 lakh,and a top-up plan of 5 lakh with a deductible of 3 lakh for the family.This will cost them around 21,600 per annum.Despite the increase in cost of the covers,the couple will end up paying lesser on insurance once these recommendations are in place.The suggestions on the rejigging of home loan and insurance will help the couple save 17,032 per month.
The next important step in planning is to build a contingency fund.With the reduced spending,an emergency corpus of 3.3 lakh will suffice for six months.Their existing savings bank balance of 2 lakh and fund value of 1.19 lakh after surrendering the Ulips can be allocated to this fund.
Like all couples,the Mahajans too want to build a corpus for the education and marriage of their children.To have an education fund of 35 lakh in place for their daughters education,they will have to start an SIP of 7,000 per month for the next 14 years.The couple also wants to have a child after a year,for whose education they will need 52 lakh.For this,they must start an SIP of 5,000 for the next 19 years.As for the marriage expenses of Archisa,the couple needs a corpus of 33 lakh in 20 years.To do so,they will have to begin an SIP of 2,500 per month.To build the marriage fund of 56 lakh for their future child,they must invest in SIPs of 1,500 per month for 25 years.All these investments are for the long term and,hence,they must invest in diversified equity mutual funds.
The final goal,of building a retirement corpus of 5.27 crore in 28 years,is also within reach,says Maalde.The EPF contribution of 11,136 per month will give them about 2.41 crore.The maturity value of LIC plans has also been allocated for the retirement goal and should be reinvested in equity schemes,which will provide them with another 17 lakh.The surrender proceeds of 5 lakh from Ulips must also be allocated to this financial goal.They should invest these funds via SIPs of 25,000 in diversified equity scheme over a period of 20 years.All these investments will give them 4.47 crore.For the shortfall,they are advised to start a SIP of 2,500 per month,again in diversified equity mutual funds.This will help them amass the required money for the goal.
Financial plan by Pankaaj Maalde,Chief Financial Planner,www.apnapaisa.com
