Equity exposure must for achieving
goals
|
Pankaaj Maalde,
|
The heavily skewed portfolio of the Rajputs will
have to be diluted to include equity in order to achieve their targets. They
will also have to ramp up their medical insurance to cover their risks.
For most investors, a skewed portfolio
stands in the way of achievement of financial goals.
In
India, the skew is typically towards real estate or debt, which prevents the
optimum utilisation of funds. The portfolio of Thane-based Rajputs also suffers
from this flaw. With 96% allocation to real estate and 4% to debt, they have
blocked the growth of their money by not investing in high-yield avenues and
instruments. Though they are in the early stages of financial planning, they
will need to increase their equity exposure immediately to be able to realise
their dreams. As with most investors, their goals are simple and realistic:
building a contingency corpus, saving for retirement, and for the education and
marriage of their future child. Pankaaj Maalde of Apnapaisa.com charts a
financial course for them.
Existing financial status
Nirmalsingh,
32, stays with his 25-yearold wife, Payal, at Thane, Maharashtra.Though Payal
is an engineering graduate, she is a homemaker and the couple is planning to
have a baby by next year.Nirmalsingh is a design consultant and earns a monthly
salary of `90,000.Though Nirmalsingh has done well to invest in real estate at
an early age, he has over-leveraged himself by taking two loans for two houses.
The outstanding loan amount is `48 lakh and he is currently paying EMIs
totalling `52,945, which exceeds the limit of 40% of his income as recommended
by financial planners. He also earns a rent of `10,000 a month from one of the
properties.
The
Rajputs' other expenses include household spending of `17,000 and rent of
`10,000, besides the insurance premium of `8,375. Nirmalsingh also invests in
the PPF and contributes to the EPF, which leaves him with an investible surplus
of `11,680 a month. Maalde tells the family how to realign their investments to
be able to meet all their goals.
Insurance coverage
Nirmalsingh
has two traditional plans, one online term plan and another term plan linked to
the home loan. Maalde suggests that he retain both the traditional plans to
form the debt component of his portfolio, as well as the term plan. The second
term plan will end once the loans are closed. As his existing plans are meeting
his need for life insurance, Nirmalsingh is advised not to buy any more
insurance for himself. Since Payal is not earning, she also does not need any
cover.
As
for health insurance, Nirmalsingh only has a `3 lakh plan provided by his
employer, which also covers his wife and mother. Maalde suggests that he buy an
independent family floater plan worth `10 lakh for himself and his wife, which
will cost him `12,000 a year. He is also advised to pick up a critical illness
and accident disability plans worth `50 lakh each for himself, which will
result in an annual premium of `19,000. The marginal additional premium can be
easily met through the investible surplus.
Road map for the future
Before
deciding on the future course of action, Maalde suggests that Nirmalsingh
prepay both his home loans worth `48 lakh by selling one of his properties
worth `50 lakh. This will free the EMI of `52,945 to invest for other goals.
Since he has recently purchased the second property for `45 lakh, the sale may
result in short-term capital gains tax. Hence, he is advised to consult a
chartered accountant or tax planner before carrying out the transaction. After
this, the family can start planning for their goals, the first of which is
building an emergency corpus.
The
family will require a corpus of `2.16 lakh, which is equal to their six months'
expenses. For this, they can allocate their cash component of `10,000 and fixed
deposit of `50,000. Besides this, they will have to start saving `18,000 in an
ultra short-term fund for a year to build the required corpus.
Next,
they need to save for their retirement, for which they have estimated a need of
`6.5 crore in 28 years. To achieve this, they can assign their PPF and EPF
contributions provided Nirmalsingh continues working till he is 60. They can
also allocate one of their traditional plans, which will mature in 2029.
Combined, these will help amass `1.7 crore. To make up for the shortfall, they
will have to start a fresh SIP of `15,000 in an equity mutual fund and `4,000
in the PPF.
Next,
they can start planning for their future child's education and marriage needs.
For education, they will require `60 lakh in 18 years. To meet this goal, they
will have to start a SIP of `10,000 in a balanced fund. For the marriage
expenses of their child in 25 years, the Rajputs want to accumulate `1.03
crore. To build this corpus, they will have to start investing `4,000 in an
equity fund via SIPs and `2,000 in a gold fund. This investment will help
create the required funds in the given time frame.
After
building the contingency fund in a year's time, the Rajputs can decide on other
goals and direct the `18,000 towards these. They can invest either in an MIP,
if the goal is less than five years away, or in a balanced fund, if the goal is
more than five years away. They can also consider planning for the needs of
their second child and allocate this money for it.
Financial
plan by Pankaaj Maalde, Head, Financial Planning, Apnapaisa.com
