Savvy investments to
help meet all goals
Despite a
sharp skew towards real estate and two big loans, the Rangacharis are unlikely
to face any challenges because of the disciplined investments and adequate
cover of risk.
A conscientious
investor may not necessarily be prudent because aggressive investments don't
always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely
to turn this conventional wisdom on its head. He does not have the right mix of
assets in his portfolio--82% in real estate and a minuscule 5% in equity.
However, the diligent and disciplined investments over the years mean that he
will face little problem in achieving his financial targets. There are, of
course, flaws but these can be easily rectified. To help Rangachari realign his
existing resources with his goals and suggest a course of action for the
future, financial adviser Pankaaj Maalde will prepare a plan for him.
Existing financial status
Rangachari
is 41 and a senior info-tech manager living in Chennai with his wife,
Vidhyalakshmi, who is 35 and a homemaker. The couple has two children--Sreeram,
10, and Sreenidhi, 6. Rangachari's 72-year-old father also lives with them and
is dependent on him. The family lives on rent, but has three properties worth
`2.02 crore. One of these provides a rent of `18,000 a month, while another has
been bought through a loan of `25 lakh, which results in an EMI of `26,500.The
couple has also taken a personal loan worth `2.5 lakh, for which they are paying
an EMI of `5,750.
Rangachari
draws a monthly salary of `1.25 lakh, and combined with the rental earning, the
total income comes to `1.43 lakh. As for their expenses, `35,000 goes as
household expenses, which includes a rent of `15,000. Besides this, they dole
out `10,000 for insurance premium, `15,000 for children's education, and
`22,000 for Rangachari's ailing father's medical expenses. The loan EMIs take
up another `32,250. This leaves them with `28,750, of which `28,000 is being
currently invested.“I want to know if my actual and planned investments are
correct and whether I have chosen good mutual funds,“ says Rangachari. Maalde
will analyse these investments and suggest changes to meet the goals. The
family's targets include building a contingency corpus, saving for their
children's education and wedding, and for their own retirement. Maalde begins
by assessing the family's insurance portfolio.
Insurance portfolio
Rangachari
has shown a high degree of awareness when it comes to insurance and has bought
adequate life and health covers.He currently has an online term plan worth `1
crore. Besides this, he has two Ulips, for which he is paying a high premium
but should consider reviewing these after the lock-in period of five years. He
is advised not to buy any more insurance. As his wife doesn't earn, she doesn't
require any life insurance.
As for
health insurance, his company provides a cover of `10 lakh and he also has an
independent family floater plan of `5 lakh. So he is adequately covered and doesn't
need any more medical insurance.Rangachari also has an accident disability
insurance of `20 lakh, which is again adequate. He should, however, consider
buying a critical illness plan as and when his cash flow improves.
Road map for the future
Before preparing
a plan to achieve the goals, Maalde suggests that Rangachari repay both his
loans, as it will free up `32,250 for investment. He can do this by reducing
his real estate portfolio and selling one of his properties worth `32 lakh. It
will take away his rental income, but help repay both the loans. It will also
leave him with enough funds to form a contingency corpus.
He needs
to build an emergency corpus equal to six months' expenses, which will amount
to `4.9 lakh. It can be formed by allocating his fixed deposit worth `15,000
and `4.5 lakh that he will be left with after the sale of property. This should
suffice for contingencies. Now Rangachari can start planning for the other
goals, starting with his children's education. For his son's education expenses
in eight years, he has estimated a need of `18.5 lakh. To accumulate this, he
should allocate both his Ulips and review after five years.Simultaneously, he
needs to start an SIP of `5,500 in a balanced fund to achieve the amount in the
given period. For his daughter's higher studies, Rangachari wants `25 lakh in
12 years. To get this sum, he is again advised to allocate one of his Ulips to
the goal and, additionally, start an SIP of `2,500 in an equity diversified
fund. This will help him build the required corpus.
Next are
the goals of his children's wedding, for which he will require `16 lakh and `86
lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi. Maalde has
not assigned any existing resource for these goals.To achieve the former,
Rangachari will have to start an SIP of `3,000 in an equity fund, while for the
latter, he will have to start investing `7,000 in an equity fund and `2,000 in
a gold fund via SIPs. This should ensure the amassing of required amount in the
specified period.
Finally,
Rangachari is left with the goal of building his retirement kitty, for which he
shall require `4 crore in 19 years, assuming an inflation rate of 8%. For this,
Maalde has assigned the EPF and PPF funds, which are likely to yield `1.52
crore in the given time.For the remaining amount, Rangachari will have to start
a fresh investment of `23,000 a month. He needs to begin an SIP of `18,000 in
an equity fund and another `5,000 in the NPS. These will help him amass the
required amount in 19 years. As for his PPF, he can start depositing the
minimum amount of `500, and continue to make contributions in the EPF account
till the age of 60 years.
