Aggressive investing to stand in good
stead
The Barmans are in a sweet
spot because exposure to equity and heavy investments early in life mean that
they just need to streamline their portfolio and secure their risks for a
stable future.
It's good to question your
decisions, especially when it comes to your finances. The exercise not only
helps explore better avenues to make your money work harder, but also seek
expert advice to point you in the right direction. Faridabad-based Barmans have
handled their finances better than most and have a net worth of `1.14 crore,
but are still worried about their ability to meet their goals. This is why they
have sought professional advice. To help the young couple streamline their
portfolio and plug the gaps, financial planner Pankaaj Maalde will prepare a
blueprint to serve as a guideline.
Existing financial status
Rahul Barman is 30 and
works for a telecom company, while his 26-year-old wife, Deepanjali, is an HR
professional employed with a software firm. The couple lives in Faridabad in
their own house and are planning a child by next year, while Rahul's
62-year-old mother is a dependant. The couple brings in a combined monthly
income of `72,000, of which `32,500 is spent in household expenses, `8,042 as
insurance premium, while `28,083 is invested, leaving them with a surplus of
`3,375.
The Barmans have a high
saving and investing ratio, which will stand them in good stead. They have
taken several other good decisions, including the purchase of a house and
another property for investment, exposure to equity through mutual funds and no
liabilities. On the flip side, they have failed to secure their risks and have
laid a greater emphasis on debt though they could have taken a higher exposure
to equity since their goals are long-term in nature. The goals include building
an emergency corpus, buying a car, saving for their future child's education
and wedding, and their retirement.
Their portfolio comprises
45% debt, which includes debt funds, PPF and EPF, while 17% equity is formed by
equity funds and ETFs. Real estate comprises 33% and gold makes up the
remaining 5%. Maalde explains how to assign their existing resources to goals
so that they can be achieved in a time-bound manner. To begin with, however, he
shall assess their insurance portfolio.
Insurance portfolio
The Barmans currently have
three traditional plans for which they are paying a high premium, but Maalde
suggests that they retain all three as a debt component of their portfolio
since the returns are likely to beat inflation. This also means that Rahul is
not insured adequately for life and should buy an online term plan worth `50
lakh for 30 years. It will cost him `6,500 in annual premium. Deepanjali
doesn't need to be insured as of now.
As for health insurance,
the couple is relying only on the cover provided by the employers. Hence,
Maalde suggests that they buy a family floater plan worth `10 lakh, which will
cost them `16,000 a year. Rahul should also buy a `5 lakh policy for his
mother, which will come for `20,000 a year. Besides these, Rahul should pick up
critical illness and accident disability plans worth `25 lakh each, at a cost
of `10,000 per annum. This will result in an additional premium cost of `4,375
a month and can be sourced from the surplus after the realignment of
investments.
Road map for the future
Before planning for their
goals, Maalde suggests that the couple revamp their mutual fund portfolio. They
have invested in too many funds and should reduce these to 4-5 so that the
portfolio becomes more manageable. They have also invested heavily in debt
funds and this amount should be shifted gradually to equity plans through
systematic transfer plans (STPs). They are also advised to review their real
estate investment periodically.
Now, the Barmans can start
planning for their goals, beginning with the contingency corpus, which amounts
to `2.7 lakh considering their six months' expenses. They should also keep a
buffer amount of `5 lakh for their mother's medical needs, bringing the total
corpus to `7.7 lakh. They can source this from their existing investment of
`7.37 lakh in one of the mutual funds and invest it in an ultra short-term debt
fund.
Next, they want to buy a
car worth `7 lakh by next year. For this, they can use the `7 lakh in their MIP
fund and are advised not to take a loan. The couple also wants to save for
their future child's education, for which they have estimated a need of `93
lakh in 19 years, and another `1.17 crore in 22 years for higher education. For
the former, Maalde has allocated a fund investment worth `2.8 lakh and the
continuation of an SIP of `5,500 in an existing equity scheme. For higher
education, they can allocate an existing equity scheme worth `2.75 lakh.
Besides this, they should continue with the SIP of `5,500 in an existing equity
fund.
For the child's wedding,
the couple can allocate their gold investment and an existing scheme worth `2.9
lakh. They also need to continue investing `2,000 in an equity fund through
SIPs. This will yield the desired corpus of `1.6 crore in 26 years.
Finally, for their retirement,
they need a sum of `10.2 crore in 30 years. For this, Maalde has allocated
their PPF and EPF funds, cash holding, and debt funds. They should, however,
transfer the debt investment to a diversified equity fund via STPs, as
suggested. They also need to continue investing `7,000 in an equity fund via
SIPs.These will provide the required corpus for retirement in the specified
time.
The couple will be left
with a surplus of `7,083, which can be invested for any other goal. Besides,
the LIC maturity value and the second property can act as cushion if Deepanjali
decides to quit her job.
