Early start, focused approach key to goals
The Tembhurnekars have saved and
invested consistently for their long-term goals. So, despite choosing wrong
avenues of investment, they are well-equipped to meet the objectives.
Kunal Tembhurnekar is the average Indian investor in more ways than one.
With the deeply ingrained need to save, he started early, but like most
investors, he has done so haphazardly. The 32-year-old has a holding of 81% in
real estate, giving his portfolio an undesirable skew. The remaining
investments typically comprise debt at 11%, which includes several traditional
insurance policies. These are not only expensive, but also provide a low cover.
Another commonality with other investors is the hesitant venturing in mutual
funds through SIPs. It's a step in the right direction, but with a holding of
just 7%, the equity exposure is too low.
Despite these obvious flaws, a high net
worth of nearly `80 lakh means that Pankaaj Maalde of Apnapaisa.com can easily
help the Tembhurnekars meet their goals by realigning their investments.
Existing financial status
Both Kunal and his 31-year-old wife,
Shital, are software professionals and stay in Pune. They are expecting a baby
this year and are keen to plan for the child's financial goals. Though they
stay in a rented house, they have two properties, one in Mumbai and another in
Pune. Kunal has taken a loan for one of the properties and is currently paying
a high EMI of `39,500 for this. “My Mumbai property is worth `45 lakh and has
shown a 120% appreciation in the past five years,“ says Kunal. “Should I sell
it to prepay the loan on my Pune property?“ he wants to know.Maalde answers
this query later.
While Kunal brings in a monthly salary
of `62,000, Shital earns `15,000 and the couple also earns a rental income of
`9,000 a month from one of their properties. As for their financial outgo, the
couple spends `17,500 on household expenses, `39,500 as home loan EMI, `6,667
as insurance premium, `9,000 as monthly rent, and invests `5,000 in mutual
funds and PPF. This leaves them with a surplus of `8,333 per month.
The couple's financial goals include
building a contingency corpus, buying a car, amassing funds for their child's
education and marriage, and their own retirement. Maalde has prepared a plan
that makes optimum use of the couple's existing resources. He has also shifted
investments from real estate to equity and debt in order to realise all their
goals. He starts by revamping their insurance portfolio.
Insurance coverage
In a typical insurance buying spree,
Kunal bought six traditional plans, one returnof-premium term plan and a Ulip.
The plans combinedly cover him for `23 lakh and Kunal is paying an annual
premium of `80,000 for these. To ensure adequate risk coverage, Maalde suggests
that Kunal buy a term plan of `1 crore for 30 years, which will cost him nearly
`10,000 per annum. According to the need-based theory, Shital does not require
a life cover as of now. Maalde also suggests continuing with four plans, which can
be used for a couple of goals, but recommends surrendering the other four since
these are expensive and the returns will not help them beat inflation.
When it comes to their health
insurance, the Tembhurnekars have a `3 lakh cover by their employers. This is
not sufficient and Maalde suggests purchasing a `15 lakh family floater plan,
which will cost them `17,000 a year. Besides, they should buy a critical
illness and accident disability plan worth `50 lakh each, which will cost them
`18,000 a year. After the recommended changes in the portfolio, the total
premium for both life and health insurance will reduce marginally.
Road map for the future
To protect their finances, the
Tembhurnekars need a contingency corpus of `2.28 lakh, which is equal to their six
months' expenses. For this, the couple can allocate the cash of `2.5 lakh in
their savings bank account.
Before planning for their other goals,
Maalde suggests that the couple sell the Mumbai property worth `45 lakh and
prepay the entire `43 lakh loan on their Pune property. This will free the
`39,500 EMI they are currently paying and it can be used to achieve other
goals. The first goal is buying a car worth `8 lakh in three years. For this,
they can allocate the surrender value of `1 lakh from their insurance and the
money they save after selling the Mumbai property.They should invest this in a
monthly income plan of a mutual fund. They also need to start a monthly SIP of
`17,000 in an arbitrage fund to build the corpus. They are not advised to take a
loan as the cost will be too high. After investing for other goals, they will
be left with `7,000 and can start with this amount. They should increase this
amount once they move into their own home and save on monthly rent.
Next, the couple has estimated a sum of
`1.2 crore for their child's education in 18 years, and `68 lakh in 25 years
for the wedding. For the education goal, they should start a fresh monthly
investment of `15,000, of which `13,500 should be put in an equity fund via an
SIP and `1,500 in the PPF till the goal period. To meet the wedding expenses,
they should allocate their existing gold investment of `30,000. Besides this,
they should start an investment of `4,000, with `3,000 invested in an equity
fund via an SIP and `1,000 in a gold fund till the goal period.
Finally, for their retirement, they
will require a sum of `6 crore in 28 years. To meet this goal, Maalde suggests
allocating their existing stock (`2.5 lakh) and mutual fund (`1.9 lakh) corpus,
besides their PPFEPF investment of `2.28 lakh. These are likely to grow to
`1.96 crore in the given period. For the remaining amount, they should invest
`12,000 in an equity fund, and `1,000 in the PPF. The maturity amount from the
four insurance policies is also reserved for retirement. This will help them
meet the goal.
