Aggressive investing
will stand in good stead
The use of existing resources and fresh
allocation to equity will help Narvencars reach their goals.
Given their income level and goals, the
Narvencars should have been wringing their hands in concern.
After all, a salary of `42,000 doesn't quite
drum up the confidence to secure one's financial future, especially if the
primary goals are yet to be achieved. However, this Goa-based couple doesn't
have too much to worry. With disciplined saving, smart investing and risk
management, they could well be the poster-family for financial planning. They
have not only saved and invested aggressively despite the limited salary, but
have also built a diversified portfolio. Though their net worth is not too high
at `18 lakh and there are obvious flaws in the plan, the positives clearly
outweigh the negatives and form a strong base to build on. Financial adviser
Pankaaj Maalde will help them formulate a plan to steer through uncertainties
and stay clear of any mistakes they are likely to make in the future.
Existing financial status
Sarvesh is 35 years old and works in an
educational institution, while his wife Radha is 28 and is employed in a
cooperative bank.Though they don't have a child yet, they are planning one next
year. Among their dependants are Sarvesh's parents, who are 76 and 66 years
old, and for whose medical needs they want to build a ready corpus.
The couple earns a combined income of `42,000
every month. Of this, `11,000 is spent on household expenses, while `1,954 goes
as insurance premium. Another `13,300 is assigned for loan repayment, with
`8,100 going as EMI for a home loan and `5,200 for a personal loan. As for the
couple's investments, `10,000 goes as SIPs in mutual funds, `5,000 in the NPS
and `500 in the PPF every month. This brings their total monthly outgo to
`41,754 and leaves them with a meagre surplus of `246. However, by increasing
the investible surplus and optimising the use of existing resources and
investments, the Narvencars can achieve their objectives.
The couple has a limited set of goals, which
include building an emergency corpus, saving for their future child's education
and marriage, and their own retirement. “I want to know if I can build a big
enough corpus if I want to retire in another 20 years,“ says Sarvesh. Maalde
will help answer his question by analysing the portfolio and aligning their
existing assets with their future needs.Before doing so, he wants to assess
Narvencars' insurance needs and suggest changes.
Insurance portfolio
The Narvencars have been extremely astute in
managing their risk and have bought adequate life as well as health insurance. Sarvesh
has an online term plan and a traditional plan worth nearly `50 lakh. Maalde
suggests that he retain the traditional plan and does not recommend any more
cover for him or his wife.
As for health insurance, Sarvesh been provided a
policy by his employer, which covers the family and his parents. In addition to
this, he has bought a `5 lakh plan for himself and Radha, which is sufficient
and they do not need to buy fresh cover. However, Sarvesh should consider
buying an accident disability and critical illness cover worth `25 lakh each
for himself, which will cost him `12,000 per annum.
Road map for the future
Before the couple begins planning for the goals,
Maalde suggests rescheduling their two loans because they are paying a high
interest on these. They should shift the home loan to another lender and
increase the amount to `10.7 lakh by opting for a top-up loan for 25 years.
They can repay the personal loan via the top-up loan, and assuming a rate of
10.15%, the EMI will be around `9,850.This means they can rake in an additional
surplus of `3,450 to invest for their goals.
To begin with, the couple needs to have a
contingency corpus that is equal to three months' expenses and amounts to
`71,400.However, they also want a medical buffer of `1 lakh for their parents.
They can acculmulate this combined amount by allocating their bank balance of
`25,000 and fixed deposit of `1.5 lakh.
Next, the Narvencars want to plan for their
retirement, but it is advisable that Sarvesh continue to work till 60, instead
of 55, to be able to lead a comfortable retired life. They need `2.85 crore for
this goal,and should allocate their existing NPS, PPF and mutual fund
investments, which are likely to yield `1.56 crore. To make up for the
shortfall, they need to continue to invest in the NPS and PPF, and allocate
`6,000 of their mutual fund SIPs to this goal. This will help them build the
kitty.
As for their goal of saving `70 lakh in 18 years
for their child's education, they need to start an SIP of `6,200 in equity
funds. They can continue with their existing SIP of `4,000 in mutual funds and
start an additional SIP of `2,200 to reach the goal. As for the goal of the
child's wedding, they can start investing for it after a rise in income.
