Skewed portfolio may hurt important goals
A review of Joshis portfolio after a year of laying out a financial plan
for them shows that they continue to invest a major chunk in real estate,with
no cash left to meet the goals for their daughter.
AMIT KUMAR
Prioritising goals is as important as
working towards them.If you dont follow this tenet of financial planning,the
achievement of one important goal is likely to come at the cost of sacrificing
the others.When Rohit Joshi,a senior manager in an education company,contacted
us to help him with his finances,his portfolio was massively skewed towards
real estate.The usual suspectsexpensive insurance,low equity investment and no
contingency fundwere there too.We concluded that given his income,a house would
result in a struggle to build corpuses for his future childs education and
marriage.His daughter was born a few months after the plan,and in light of this
development,the financial review will help them rectify their mistakes.
The original plan
Rohit,29,lives with his wife
Neha,24,and 10-month-old Niral in their own house in Vadodara.When the Joshis
approached ET Wealth for advice a year ago,it was easy to see why.Rohit had a
monthly income of 52,725,and after accounting for all their expenses,the Joshis
were left with a handsome surplus of 24,306.At that time,they were supposed to
pay 6.45 lakh for a piece of land bought in Ujjain a few months ago.
The couple had been lazy about life insurance too.They had a total cover of 76 lakhfrom two traditional insurance plans,three Ulips and one online term planand shelled out about 43,000 per year for this.They did better at health insurance with a cover of 3 lakh each from ICICI Lombard.Their goals included making a down payment for the land in three years,saving 37 lakh and 55 lakh for their childs education and marriage,respectively,and amassing 6.57 crore in 30 years for their retirement.
The couple had been lazy about life insurance too.They had a total cover of 76 lakhfrom two traditional insurance plans,three Ulips and one online term planand shelled out about 43,000 per year for this.They did better at health insurance with a cover of 3 lakh each from ICICI Lombard.Their goals included making a down payment for the land in three years,saving 37 lakh and 55 lakh for their childs education and marriage,respectively,and amassing 6.57 crore in 30 years for their retirement.
Our suggestions
According to the recommendations of Pankaaj Maalde of Apnapaisa.com,the planning involved two steps.First,to build the corpus of 6.45 lakh in three years for the down payment of the house,and then the planning for the other goals.Rohit had decided to sell the land for making the down payment.We had suggested that he start a recurring deposit of 25,000 for the next three years and this amount,along with the sale proceeds of the land,would have provided the required money.
We had also asked the Joshis to cut their life insurance premium by surrendering the expensive plans and Ulips.While they were asked to continue with the online term plan of 70 lakh,we suggested getting rid of the LIC endowment and Bima Kiran policies as they were costly and offered neither flexibility nor good returns.For health insurance,we had suggested raising the cover to 5 lakh through a top-up plan,and buying an accident disability cover of 50 lakh as well as a critical illness cover of 50 lakh.For the retirement corpus of 6.57 crore,their PPF balance and contributions of 60,000 per year,along with a monthly SIP of 13,000,with 90% in equity and 10% in debt/gold fund,would have helped reach the target.
The follow-up
The Joshis havent been particularly diligent about implementing the recommendations.They have,in fact,bought the house in Vadodara and are supposed to move in by next month.Rohit sold the plot and took a loan from his father to make the down payment of 12 lakh.Though his income has now increased by 6,000,the two EMIs amount to 26,500.This leaves them highly skewed in favour of real estate,with little cash available to invest.Their expenses,however,will soon reduce by 5,000 being paid as house rent.
The couple has also not followed the life insurance suggestions seriously.They have surrendered Bajaj Allianz Ulips,but not the LIC Market Plus.So we advise them again to give up both the plans and discontinue Bima Kiran as they are covered for 70 lakh.As for health insurance,they surrendered the ICICI Lombard individual policies,which they were not supposed to,and bought New India Health Insurance,which has a room rent sub-limit of 1% of the cover.They have also not bothered to buy the critical illness and accident disability plans.
Of their current SIPs of 6,000 across five funds,they are advised to discontinue SIPs in ICICI Dynamic and DSPBR Midcap and invest in the other three funds: Canara Robeco Equity Diversified,ICICI Prudential Dynamic Plan,Reliance Equity Opportunities and HDFC Equity Opportunities.All these suggestions will help save 7,000,which should be invested for retirement.
Are they on the right track
The Joshis have rushed to meet one goal without much thought to the others.So they will have to wait for at least six years till they clear their fathers loan,before investing for these goals.They must also review the portfolio every year to keep track of goals.
SUGGESTIONS IMPLEMENTED ... Investing in equity via SIPs.
SUGGESTIONS IGNORED Not buying important health covers.Not surrendering traditional,expensive insurance.
Financial plan by
Pankaaj Maalde,
CFP,Apnapaisa.com
