No
hurdles afoot after higher equity exposure
The Mendhekars will have to stagger
their goals and raise equity holding to ensure smooth sailing.
Shruti and Preshit Mendhekar are the
average Indian investors, eager to manage their portfolio with alacrity, but
committing the mistakes common to most investors. So they rely heavily on debt
and have no equity exposure despite having long-term goals. They also have a
high cash holding, inadequate insurance and have not planned their investments
as per their goals, of which there are several.
They
want to build an emergency fund, purchase a house and a car, save for their
future child's goals and for their own retirement. Though they have a good
income and a reasonably high savings ratio, they will have to stagger some of
their goals as per priority. They also need to ensure proper risk coverage with
sufficient life and health insurance, and an emergency corpus. Financial
adviser Pankaaj Maalde prepares a plan for them so that they can achieve their
major goals with ease.
Existing financial status
Shruti
and Preshit are both 30 years old and work in infotech companies, in
Hyderabad.They don't have a child as of now and are living in a rented
accommodation. Both earn the same salary of `70,000, which brings their
combined income to `1.4 lakh.of
this, they spend `57,333 on household expenses, with the home rent amounting to
`19,000. The high rent is the reason they are keen to buy their own house at
the earliest and expect to do so by next year. Besides these expenses, they
also pay an insurance premium of `1,192 for their online term plan, and have
taken two loans, for which the EMIs come to `38,000. One of these is an
education loan, which will close in another two years, while the other has been
taken against bank deposits. This outgo leaves them with a surplus of `43,475,
but before Maalde advises them on its usage, he wants to analyse their
insurance portfolio.
Insurance portfolio
While
Preshit has secured his life with an online term plan worth `1 crore, Shruti
has no life insurance. So, while Preshit doesn't need to buy any more
insurance, Maalde suggests that Shruti also buy an online term plan of the same
amount, which will cost her `8,500 annually.
As
for health insurance, Preshit has a `3 lakh plan, but Shruti doesn't have any.
Maalde recommends a family floater plan worth `10 lakh for them, which will
cost them `15,000 per annum. Besides this, the couple should purchase accident
disability insurance and critical illness plans for both, and these will come
at a cost of `18,000 a year.This additional premium cost can be funded from the
investible surplus.
Road map for the future
After
taking care of their insurance needs, the couple can start focusing on their
goals.To begin with, they need to build a contingency corpus equal to their
household expenses for three months. This will amount to `3.4 lakh and can be
furnished from the `8 lakh cash in their savings bank account.
Now
they can start planning for their other goals, the most crucial at this stage
being the purchase of a house by next year. They want to buy property worth `45
lakh and provide a down payment of `10 lakh within a year.They can accrue this
amount by allocating the remaining cash in their bank account, but will also
have to start investing `40,000 in a recurring deposit for one year. They
cannot take the risk of investing in equity for this goal because of the
extremely short tenure and the need to secure capital. This investment will
help them create the funds for down payment. For the remaining amount of `35
lakh, they can take a home loan, which will result in an EMI of `32,000 at an
annual rate of 10.5%. Once this goal is achieved, they will have `40,000
available to them for investing, along with the rent of `19,000. This can be
used to fund other goals after keeping aside `3,000 for maintenance charges of
the new house.
Next,
they want to prepare for retirement in 25 years, for which they will need `9.57
crore. For this goal, they can allocate their PPF and EPF funds, which will
yield `1.56 crore in the given term. For the remaining amount, they will have
to start an SIP of `20,000 in an equity fund and invest another `1,000 in the
PPF. However, they will be able to do this only after one year when they are
through with the goal of buying a house.
The
couple also wants to buy a car worth `10 lakh in two years. Given the priority
of other goals, they will have to scale it down and push it back by a few years.
Since they will have a surplus of `3,500 from next year, they can start
investing this amount for the car, and once they prepay the `18,000 loan in two
years, they can invest a part of this for the car as well. They can use the
remaining amount to save for their future child's goals of education and
wedding. However, they can review the situation again after two years after a
rise in income and decide how they want to split this amount.
Financial plan by Pankaaj Maalde, Certified Financial
Planner
