Revamp
portfolio to meet the goal schedule
Pune-based Pathaks will
need to improve their asset allocation and investment pattern to be able to
achieve all financial objectives and secure the family's future.
indian investors' love for
real estate remains unabated. With scant regard for asset allocation or
portfolio con struction, they binge on this illiquid asset, convinced that it
is the solution to all their financial woes. However, as financial planner Pankaaj
Maalde explains to this week's case study, Pune-based Pathaks, it is essential
to be realistic about goals and their fulfilment in a time-bound manner. Hence,
instead of locking up one's money in a single asset, one should have funds to
invest for all the goals and ensure ready corpus when it is needed for each of
them. Here's how he formulates a plan for Pathaks so that they can reach their
primary goals with ease.
Existing financial status
Nagesh Pathak is 36 years
old and lives in his own house in Pune with his 33-year-old wife, Kanchan, and
six-year-old daughter, Ramaa. He works for a private company and brings in a
monthly salary of `85,167, while Kanchan is a homemaker. Of this amount, nearly
`19,000 goes in household expenses and `5,000 for the child's education.
Another `3,517 is used for paying insurance premium and a big chunk of `47,000
is the EMI for a home loan of `51 lakh that he has taken for his second house
worth `58 lakh. This leaves him with a surplus of `10,650 a month.
As for his portfolio, the
two houses mean that he has 83% in real estate, while 14% is in debt and only
3% in equity. Maalde recommends that he sell one of his houses worth `32 lakh
to repay the home loan partially and generate enough surplus to be able to
invest for his major goals. Nagesh can repay `28 lakh home loan, reducing the
EMI to `22,225 and leaving him with an additional `24,775 to invest for his
goals.
Nagesh's goals include
building an emergency corpus, saving for his daughter's higher education and
wedding, and for his own retirement. “I primarily want to secure my daughter's
future and my own retirement,“ says Nagesh. Maalde explains how he can make the
most of his investible surplus, but first he will analyse the family's
insurance portfolio and suggest changes, if required.
Insurance portfolio
Nagesh currently has two
traditional plans for which he is paying an annual premium of `42,000, but
these offer him a low cover. Still, Maalde suggests that he retain both of them
to form the debt component of his portfolio since these are likely to give
returns that can beat inflation. As he is inadequately covered, he should buy
an online term plan worth `1 crore for 25 years, which will cost him `18,000
per annum.Since Kanchan is not working, she does not require any life
insurance.
As for health insurance,
Nagesh and his family are covered by his employer for `5 lakh. However, Maalde
suggests that he pick up a `10 lakh family floater plan, which will cost him
`19,000 per annum. He is also advised to buy critical illness and accident
disability plans worth `25 lakh each, which will cost him `1,000 a year. The
cost of additional insurance can be funded by his investible surplus.
Road map for the future
After taking care of their
insurance needs, Nagesh can start planning for his goals, the first of which is
setting aside a contingency corpus so that he is prepared for eventualities.
For this, he will have to sell his second house, as mentioned earlier. From the
sale proceeds, he can take `4 lakh and assign it to this goal. He should invest
this amount in a short-term debt fund.
Next, he wants to save for
his daughter's education when she is 18 and 21 years, respectively. He wants to
have a corpus of `38 lakh in 12 years and for Ramaa's higher education three
years later, he wants to save a sum of `63.5 lakh. To achieve these twin goals,
Maalde has not assigned any existing resource. Nagesh will have to start an SIP
of `11,000 in a diversified equity fund for the specified time period to yield
the desired amount. For higher education, again no existing resource has been
allocated and he will have to start an SIP of `11,500 in a diversified equity
fund for the specified time.
The next priority for
Nagesh is saving for retirement, for which he will require `3.64 crore in 24 years
to ensure a comfortable life. To be able to achieve this goal, Maalde has
assigned Nagesh's EPF (`4.5 lakh) and PPF (`1 lakh) corpuses, his existing
mutual fund corpus of `1.2 lakh as well as the two LIC plans' maturity amount
of `10 lakh.Combinedly, these investments are likely to yield `2.19 crore in
the 24-year period. To make up for the shortfall of `1.45 crore, Nagesh will
have to start a fresh monthly investment of `7,500 through an SIP in a
diversified equity fund. This will help him build the required corpus in the
specified time frame.
Now the only goal left for
Nagesh is his daughter's wedding in 19 years, for which he has estimated a need
of `43 lakh. To meet this goal, Nagesh will have to start an SIP of `5,500 in a
diversified equity fund to muster the required corpus. However, he doesn't have
sufficient money to invest for this goal. After making investments for all his
primary goals, Nagesh will be left with a surplus of `1,359, which he can use
to start investing for the marriage goal immediately.He can increase this
amount as and when his income increases in the future. He can also use the
jewellery worth `2 lakh as a back-up for this goal. If he sticks to the plan,
he should be able to reach all his milestones without much struggle.
