Early start, high surplus to help meet goals
The disciplined savings, regular
investment in equity and the purchase of a house at an early stage will go a
long way in helping the Bachanis achieve all their primary goals with ease.
Rakesh Bachani has done a fairly good job of his finances, but is still
riddled with doubts. It's an indication of financial maturity because only the
incompetent are smug about their decisions and free of all doubts. In fact, he
has done the right thing in seeking professional advice at this stage because
it will help him make a course correction that will align his existing and
future investments with his goals, making them easy to achieve.
Unlike the average investor, the
Jamnagar-based Rakesh Bachani's portfolio has a reasonable 36% exposure to
equity, though the debt component is high at 62%. Financial planner Pankaaj
Maalde of Apnapaisa.com suggests increasing this to 82% to ensure he meets all
his goals.There are, of course, flaws in his portfolio, but these can be easily
rectified and a clear road map charted for the future.
Existing financial status
Rakesh, 35, works for a private company
and stays in his own house with his 34-year-old wife, Rashmi, seven-year-old
daughter and four-year-old son. While his wife is a homemaker, he brings in an
income of `77,000 per month. Of this amount, the family manages to save a big
chunk of `37,917. As for their financial outgo, the Bachanis spend `22,083 a
month on household expenses, `2,500 on children's education, and a high `14,500
on insurance premium. The investible surplus will help meet the family's goals,
which include building a contingency corpus, saving for their two children's
education and marriages, and planning a retirement kitty. Since they already
have their own house, acquiring real estate doesn't feature in their goals.
Insurance coverage
Maalde begins with the assessment of
Bachanis' insurance portfolio. While Rakesh has given some thought to his life
insurance, his health cover is not adequate. He has a term plan of `50 lakh and
two traditional plans, for which he pays a combined premium of `1.53 lakh a
year.Maalde suggests that he buy another term plan worth `50 lakh, which will
cost him about `9,000 and surrender the two traditional plans since they are
very expensive and will not be able to beat inflation.So, even though it will
be tough to let go of the high premium amount already paid, the Bachanis should
close these plans and channelise the amount saved to achieve their goals. Since
Rashmi is not working, she does not require any life insurance.
As for health insurance, the Bachanis
only have a cover of `2 lakh which is provided by Rakesh's employer. So, Maalde
suggests that he buy a family floater plan of `15 lakh, which will cost him
`17,000 per annum. Besides this, Rakesh also needs to purchase an accident
disability insurance worth `50 lakh and a critical illness policy of the same
amount. Together, these will cost `18,000 per annum. The premium can be easily
paid by Rakesh from the amount he saves on surrendering the traditional
policies.
Road map for the future
Before the Bachanis start planning for
their children's goals and their retirement, they need to have an emergency
corpus in place to take care of any eventuality. They should have `93,000,
which is equal to their three months' expenses.For this, Maalde suggests
allocating the cash holding of `20,000 in their saving bank account and fixed
deposit of `1 lakh, which can serve as a contingency corpus.
They can now move to their children's
education planning. For their daughter, the couple has estimated a need of `28
lakh in 11 years. To amass this sum, they should start a monthly SIP in an
equity fund. Similarly, for their son's education expenses when he is 18 years
old, the couple wants `35 lakh in 14 years. To achieve the goal, they will have
to start another monthly SIP of `8,000 in a similar fund.Given an annual growth
rate of nearly 12%, they should be able to meet both the targets within the
given time frame.
Moving on to the next set of goals,
which comprises accumulating funds for their children's marriages, the Bachanis
want `60 lakh for their daughter's wedding in 18 years. For this, Maalde
suggests allocating the `20,000 invested in gold to the goal. In addition to
this, they will have to start a fresh SIP of `6,500 in an equity fund and
`1,000 in a gold fund. This will yield the desired amount when the daughter is
25 years old. As for their son's wedding, the couple wants `50 lakh in 21
years. This can be met by investing `3,500 in an equity fund via an SIP and
`500 in a gold fund.
Finally, for their retirement, the
Bachanis will need `3.25 crore in 20 years since Rakesh plans to retire at 55.
To meet this goal, Maalde has allocated Rakesh's current investment in the EPF
(`2 lakh), equity funds (`4.7 lakh) as well as liquid funds (`5 lakh). While
the liquid funds should be shifted to an equity fund via SIPs of `25,000,
Rakesh also needs to start a fresh SIP of `15,000 in an equity fund and deposit
`1,700 in the PPF till retirement. All these investments in the recommended
avenues will ensure a smooth journey for the family.
The total sum required to be invested
adds up to `46,200, but the current surplus is only `37,917. However, the
family will save nearly `9,000 by surrendering their traditional plans and this
amount will help make the required investments.
