High income, savings
ease financial journey
The Kumars need to increase and realign their equity investments to be able to correct the heavy debt skew in their portfolio and can reach all their primary goals without difficulty.
The
Kumars are a poster couple for the benefits of early financial planning. A
timely start gives you the advantage of compound ing, the liberty to correct
any investing mistakes, a long horizon to save without stretching your
finances, and investing in avenues that can help your money grow faster. At 32,
Anuj Kumar has a creditable net worth of `65.47 lakh thanks to aggressive
saving and investing since he started working. Though his portfolio is heavily
skewed towards debt (88%) and only 12% is in equity, this can be easily
rectified and the family will be able to achieve all their goals with ease by
allocating the existing resources and making fresh investments.Financial
planner Pankaaj Maalde will help them do so by preparing a blueprint which they
can follow.
Existing financial status
Anuj
Kumar is a 32-year-old software professional, who lives in Greater Noida with
his wife and daughter. While 29-year-old Sima is a homemaker, the daughter
Sparsh Aashi, is four years old. Kumar brings in a salary of `1.25 lakh and
gets another `20,000 as rent, bringing the total income to `1.45 lakh.
Of this
amount, `55,500 is spent on household expenses, which includes a house rent of
`18,000. Another `35,000 goes as EMI for a home loan of `34 lakh that he has
taken for his property worth `70 lakh. Besides these, he doles out `13,792 on
insurance premium and `8,000 on his daughter's education. He makes investments
worth `18,250, mostly in recurring deposits, leaving him with a surplus of
`14,458. This, along with a realignment of his current investments, will help
Kumar work towards his goals. The goals include building an emergency corpus,
saving for child's education and wedding, as well as for their own retirement.
First, however, Maalde will consider Kumar's insurance portfolio and suggest
some changes.
Insurance portfolio
Kumar
currently has three insurance plans--a term plan worth `50 lakh, a pension plan
which provides `21 lakh of insurance and a Ulip with `8 lakh worth of cover.For
these plans, he pays an annual premium of `1.55 lakh. Since this is a high
amount and the returns from the pension plan and Ulip are unlikely to beat
inflation, Kumar is advised to review these after the lock-in period of five
years. He should, however, continue with his term plan though the amount is
inadequate. So, he needs to purchase another term plan worth `1.25 crore for 30
years, which will cost `12,000 annually. Since Sima is not working, she will
not require any life insurance.
As for
health insurance, Kumar is covered by his employer and also has an independent
family floater plan worth `4 lakh.This has been a good move on his part, but
Kumar should increase this amount to `10 lakh and it will cost him `20,000 per
annum. Maalde also suggests that he buy a `50 lakh accident disability
insurance and `50 lakh critical illness online plan, which will cost `18,000 a
year. The new insurance plans will not incur any additional cost and, in fact,
help save `3,291, which can be used for investing for his goals.
Road map for the future
After taking
care of the family's insurance needs, Kumar can start planning for his goals,
the first being the setting up of a contingency corpus that is equal to six
months' expenses. This will amount to `6.93 lakh and can be sourced from his
fixed deposit of `5.5 lakh and recurring deposit of `1.5 lakh. These sums
should be invested in an ultra short term fund. Kumar is also advised to
discontinue his investment in the recurring deposit.
Next,
Kumar can focus on his other life goals, including the education and wedding of
his daughter. For the former, he has estimated a need of `59 lakh in 14 years
after considering an inflation of 8%. Maalde has not allocated any existing
resource to this goal and suggests an SIP of `12,500 in an equity mutual fund.
As for
the daughter's wedding, the Kumars want to save `30 lakh in today's value,
which will increase to `1.5 crore in 21 years after adjusting for inflation.
Again, Maalde has not allocated any existing resource and Kumar will need to
start an SIP of `11,500-`10,000 in an equity fund and `1,500 in a gold fund--to
accumulate the desired amount in the specified period.
Finally,
Kumar wants to amass `9.7 crore in 28 years to ensure a comfortable retirement.
For this, he will have to assign several of his existing resources, including
the EPF, PPF, cash holding in bank, stock value, the postal monthly income
funds, and both the pension plan and Ulip. These will yield a corpus of `7.93
crore in the given time frame. For the remaining amount, Kumar will have to
start an SIP of `5,000 in a diversified equity fund.
Kumar is
also advised to invest the existing savings bank balance and reinvest the
postal monthly income scheme funds in a diversified equity fund. He should also
invest a minimum of `1,000 in the PPF every year. Besides, he can shift the
entire bond fund to an equity fund. Maalde also recommends that he quit stock
investment as it requires indepth research and analysis and, instead, invest in
a diversified equity fund. All these measure will ensure that he reaches all
goals without much difficulty.Any increase in income can be used to raise the
ongoing investment and fund any other goals that the Kumars might have.
