Early start, high savings to help meet all goals
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RIJU
DAVE MEHTA
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With a more equitable
asset allocation and a higher exposure to equity, the Pacharnes should be able
to achieve all their long-term goals without any difficulty.
Throw a stone among
Indian investors and you are likely to hit one with a clear bias towards real
estate. The Pacharnes typically fit the bill. Their financial leanings and
aspirations clearly mirror that of the average Indian investor. They not only
have an overwhelming preference for real estate, but also display an expected
wariness for equity and a procilivity for cash. Besides, they have a high rate
of savings and their financial goals are realistic and unambitious. Yet, in a
surprising divergence from the stereotype, the Pune-based couple is aware about
the need to have requisite life insurance, as well as the importance of
maintaining a contingency fund. Their biggest advantage is that they have made
an early start to planning, which is one of the golden rules of investing and
is bound to help ease the financial journey considerably. This means that all
their goals are long term in nature and, hence, the couple should be able to
achieve these with relative ease.
Vilas Pacharne is 32 years old and
employed with a private firm in Pune, while his 31-year-old wife, Manisha, is
selfemployed. They have two children-Shreekant, 5, and Kaustubh, 1. While Vilas
earns `55,000 a month, Manisha cobbles together `10,000 a month. The couple
also earns an agricultural income of nearly `20,000 from the plot of land that
they have at their home town in Maharashtra. They also have another plot, which
is currently valued at `4 lakh. Hence, their total income adds up to `85,000.
Moreover, the Pacharnes live in their own house, which they bought in 2006. For
this, they took a home loan of `15.5 lakh and are currently paying an EMI of
`22,000, which comprises a big chunk of their monthly expenses.
Among their other expenses, `27,500
goes towards running the household, `3,000 for Shreekant's education and `1,958
as insurance premium. This leaves them with an investible surplus of `30,542.
This will be sufficient, provided they alter their asset allocation and make
the necessary changes suggested by Pankaaj Maalde of Apnapaisa.com. To begin
with, we shall assess their insurance needs. Vilas has rightly purchased an
online term plan worth `1 crore, which offers adequate risk coverage. Hence,
Maalde doesn't suggest buying any more life insurance. However, when it comes
to health insurance, they need to boost their existing cover. Currently, the
Pacharnes have a family floater plan worth `2 lakh, and they are advised to
port to a plan that offers a `3 lakh cover for each member. They should also
buy a top-up plan of `5 lakh with a deductible of `3 lakh. Maalde also suggests
purchasing an accident disability and critical illness plan worth `50 lakh.
This additional cover will cost them nearly `3,100, which can be easily paid
through their surplus.
As for maintaining a contingency fund,
the Pacharnes require nearly `1.7 lakh, which is equivalent to three months
worth of expenses. For this, their savings account bank balance of `2 lakh can
be allocated and it should be invested in a liquid or ultra short-term debt
fund.
Now, the family can focus on planning
for their other goals. These include building corpuses for their two children's
education and marriages, as well as for their own retirement. To begin with,
they want to amass `41 lakh in 13 years for the education needs of their older
son, Shreekant, when he turns 18. Maalde doesn't suggest deploying any of the
existing resources, but starting with fresh mutual fund investments. They can
begin a monthly SIP of `11,500 in balanced funds. At an annual growth rate of
11.6%, this will deliver the desired corpus.
Similarly, for their second son's
education, they will need `55 lakh in 17 years. To achieve this goal, the
Pacharnes will have to invest a sum of `8,500 in balanced mutual funds through
SIPs. This will give the required corpus in the given time horizon.
The couple's next goal is accumulating
`23 lakh for Shreekant's marriage, which they estimate will take place when he
turns 25. To achieve this, they need to invest `2,500 in balanced funds and
`1,000 in gold funds via monthly SIPs. At growth rates of 11.6% and 8%,
respectively, they will be able to have sufficient funds for the wedding in 22
years. Similarly, for Kaustubh's marriage, which the Pacharnes expect will take
place in 24 years, when he turns 25 years old, they want to build a corpus of
`32 lakh. To muster this sum, they will have to invest `2,000 in balanced funds
and `1,000 in gold funds via monthly SIPs. This is likely to yield the desired
amount in the given time frame.
The only other goal that remains is
retirement planning, for which the Pacharnes estimate they will require `6.25
crore in 28 years. To achieve this, the couple is advised to deploy some of
their existing resources, which include their plots of land, currently worth
`44 lakh. At a modest appreciation of 8%, it is likely to grow to worth `3.79
crore in 28 years. They can also bank on their PPF and EPF contributions, which
are currently worth `5.1 lakh and are likely to grow to `1.26 crore. Maalde
also advises that the couple sell their existing equity investments (stocks)
worth `3 lakh and invest it in balanced funds. This is expected to grow to
`64.8 lakh in 28 years. This will add up to a corpus of 5.7 crore. For the
remaining amount, they can start investing `2,000 through SIPs in balanced
funds and this is likely to bridge the gap.
By following these recommendations, the
Pacharnes can meet all their goals without difficulty. If there is a rise in
salary, they can include other goals and deploy the sum as required. Financial
plan by Pankaaj Maalde, Head, Financial Planning, Apnapaisa.com
