Shift
to equity essential to achieve all goals
The Jangales need to raise their equity exposure and cover their risks for a smooth financial journey. AMIT KUMAR
The
inherent need for financial security is strong in all of us.This is the
reason that despite being on a sound financial footing,many people look for
an experts endorsement and guidance.Take the Jangales.The family has a strong
asset base,no liabilities and invests regularly in equity,but has approached
us for direction.Given their high rate of savings and disciplined approach to
investing,it should not be too difficult for them to achieve all their
goals.These include buying a second house,saving for their kids education and
marriage,as well as the education of their future child,and build a corpus
for their retirement.
Prashant Jangale,36,is a marketing professional and lives in Mumbai,while his wife Tejaswini and daughter Aarya,5,stay in Nashik.Prashant brings home 60,000 a month and the couple earns 4,200 as rental income from a house that they bought in Nashik,in 2009.It is currently valued at 21 lakh.After accounting for their expenses,insurance and investments,they are left with a monthly surplus of 23,776.The couple has done well in saving about 35% of their income,but they need to invest it well. Before they begin planning for their goals,they need to cover themselves against risk.The Jangales spend 29,500 a month and Pankaaj Maalde,chief financial planner at Apnapaisa.com,recommends a contingency fund equal to six months expenses.The couples fixed deposit of 1 lakh and savings account balance of 1 lakh can be allocated to this goal.They should invest it either in liquid plus funds or a savings-linked fixed deposit account. Next,the Jangales should focus on their insurance needs.Despite being diligent savers and investors,they have failed to buy adequate health and life covers.The Jangales pay a premium of 4,166 a month for life insurance policies worth 9.25 lakh.They have three traditional insurance plans and three single premium plans,of which two are Ulips.The cover is dismal and has the potential to undo any smart financial moves.So,Maalde recommends that they surrender the traditional plans and buy an online term plan worth 1 crore,which will cost nearly 800 p.m. As for health insurance,the Jangales have a cover of 1.5 lakh from New India Assurance,besides a 5 lakh cover from Prashants employer.Maalde says that the familys current cover has a room rent sub-limit of 1% of the cover.So,they should port to one that does not have this limit 45 days before the next renewal,and increase the cover to 3 lakh for each member.They are also advised to buy individual top-up plans of 5 lakh,and a 25 lakh accident disability cover,as well as a 25 lakh online critical illness plan for Prashant.The premium will be about 2,175 per month,and combined with the cost of term plan,it can be taken care of by the premium saved on the surrendered traditional plans. The couple can now start planning for their goals.They want to buy a flat worth 72.5 lakh in the next five years.Their existing home at Nashik can be allocated for this purpose,along with a plot of land that they had bought a few years ago,and which is currently valued at 13 lakh.This will give them about 55 lakh in five years,assuming a growth of 10% a year.To accumulate the balance corpus of 17.5 lakh,the couple must start a monthly SIP of 30,000 in balanced funds for four years.However,they can redeem the amount after five years,when it has grown to the required level. To build an education corpus of 27.2 lakh for Aaryas education,the couple must start a monthly SIP of 13,000 in a ratio of 90% in equity and 10% in the PPF after four years,that is,after the investment for the second home is over.The couple is also planning another child and want to save 40 lakh for his education.Besides,they want a marriage corpus of 21.6 lakh for Aarya in 19 years.In both the cases,they must start monthly SIPs after four years in the same ratio as above.For the former goal,they should invest 8,000 a month,as well as 4,000 a month for the latter. The crucial goal is setting up a retirement corpus of 4.5 crore in 19 years.However,since they cannot amass this sum in the given time,they will have to postpone retirement till the age of 60.Their PPF and EPF balance will fetch nearly 86 lakh for this goal.Their existing MF investments,surrender value of traditional plans,maturity value of single premium plans,bond investment and super annuation balance can also be used for the goal.The couple must discontinue their existing SIPs in mutual funds and shift them to HDFC Equity Fund after the lock-in period.The maturity/fund value of single premium plans and bond proceeds should also be invested in equity funds.The surrender value of 30,000 can be invested in Franklin India Bluechip Fund.All these are likely to give 50 lakh at retirement.For the shortfall,they need to start a monthly SIP of 15,000 in an equity fund after a rise in income in two years.In 22 years,this will amount to nearly 3.1 crore. JANGALES GOOD MOVES ... Having a high rate of savings.
Having
a contingency fund.
Investing
in equity mutual funds via SIP.
AND THE BAD ONES Not buying adequate life and health insurance.
Not
earmarking investments for specific goals.
Financial plan by Pankaaj Maalde, Chief Financial Planner,Apnapaisa.com |
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