Savvy planning to ensure a smooth ride
The high net worth and good asset allocation will help the Doras achieve all their goals with ease.
AMIT KUMAR
With three loans,a meagre surplus of 319 and all financial goals yet to be achieved,it may seem incredible that the Doras have nothing to worry about.In fact,except for one goalbuying a second houseall others will be achieved with ease.Thanks to their prudent financial planning,the couple will need no extra investment to achieve the most important of goals: corpus for retirement.In many ways,the Doras are the antithesis of the typical Indian investor.They do not like to hoard cash,invest in equity via SIPs,and have adequate insurance,albeit an expensive one.These factors not only ease the work of a financial planner,but also help organise the financial life by making just a few changes in the portfolio.
The high net worth and good asset allocation will help the Doras achieve all their goals with ease.
AMIT KUMAR
With three loans,a meagre surplus of 319 and all financial goals yet to be achieved,it may seem incredible that the Doras have nothing to worry about.In fact,except for one goalbuying a second houseall others will be achieved with ease.Thanks to their prudent financial planning,the couple will need no extra investment to achieve the most important of goals: corpus for retirement.In many ways,the Doras are the antithesis of the typical Indian investor.They do not like to hoard cash,invest in equity via SIPs,and have adequate insurance,albeit an expensive one.These factors not only ease the work of a financial planner,but also help organise the financial life by making just a few changes in the portfolio.
Saiprasad Dora,36,lives with his wife Varsha,29,and their children Advait,5,and 6-month-old Ashwika,in Jodhpur.Saiprasad is a central government employee and brings in a monthly income of 91,000.The couple have taken three loanscar,personal and homefor which they shell out a total of 24,319 per month.After accounting for their monthly expenses,SIPs and insurance premiums,the couple is left with a surplus of 319.However,there is little to worry.With a monthly investment of 10,000 in mutual fund SIPs,the couple have built a strong base for their goals and will need to make fresh investment for only one goal;the surplus for this will be arranged by surrendering insurance policies.Similarly,though they have taken three loans,the rates are less than 10%,so there is no need to prepay them.
While all aspects of financial planning seem to be in place for the couple,they have slipped in one area: life insurance.The couple has three traditional policies in Saiprasads name,two Ulips in Varshas name,and one in Saiprasads fathers name.Pankaaj Maalde of Apnapaisa.com suggests that the couple retain only the policies bought in Saiprasads name as their returns are likely to beat inflation.Since Varsha and Sais father are not employed,they do not need financial cover.Surrendering these policies will help the couple save 7,094 per month,which can be used to invest for other goals.This will leave him with a cover of 63 lakh,which,according to Maalde,shall suffice.Since Saiprasad is employed with the central government,the couple need not buy health insurance,as they will be covered under the Central Government Health Scheme all their life.
The couple must first set up a contingency fund equal to three months expenses,which amounts to 2.2 lakh.The money should be invested either in a liquid plus fund or an FD-linked savings account (auto sweep).The couples existing FD of 1 lakh and savings account balance of 25,000 is allocated towards contingency fund.There is a shortfall and this must be increased whenever there is a rise in income.
Now,the couple can start planning for their goalsbuilding an education and marriage corpus for their children,going for a vacation and building a retirement corpus.The first goal is to go on a vacation,which will cost them 6.35 lakh after six years.To accumulate the desired corpus,the couple must start an investment of 6,000 in a balanced fund.Next,they want to build an education fund of 27.2 lakh after 13 years for their son,Advait.For this,they can allocate their stock investment and surrender value of three Ulips,which should be invested in a diversified mutual fund scheme.These will contribute 20 lakh for the goal.For the rest,they can allocate the existing monthly SIP of 2,000 in an equity scheme.Similarly,to build the education corpus of 40 lakh for Ashwikas education,they will have to allocate 3,000 of their current SIPs to this goal and start a fresh SIP of 1,200 in an equity fund.
To build 46.6 lakh for Advaits marriage after 20 years,the couple must allocate their investment in HDFC Prudence,HDFC Top 200 and Birla Sun Life.This must be invested in a diversified fund.This will contribute 31 lakh to the corpus.Apart from this,they must allocate 2,500 in the equity scheme of a mutual fund.For Ashwikas marriage corpus of 1.03 crore after 25 years,the couple must shift the remaining equity and gold mutual fund investment of 2,500 in a diversified and gold fund.
The couple is planning to retire when Saiprasad is 54 years old and require a corpus of 5 crore.They expect a monthly income of 35,000 when they retire,which will take care of 50-55 % of their needs.To accumulate the balance,their EPF funds,including further contribution,will fetch around 85 lakh.The maturity proceeds of the employers insurance and postal life insurance will also add 53 lakh to the retirement kitty.The 15 lakh worth of plot that the Doras bought in Orissa,in 2006,will grow to 83 lakh.Hence,no additional investment is required.
DORAS GOOD MOVES ...
Investing in equity via SIPs.
Buying property at an early stage.
AND THE BAD ONES
Buying too many insurance policies.
AND THE BAD ONES
Buying too many insurance policies.
Financial plan by Pankaaj Maalde,CFP,www.apnapaisa.com
