Raise equity exposure, link investment
to goals
High savings and
investments mean that Raipur-based Acharyas will reach their milestones easily.
Amit Acharya is 45 and is
yet to achieve most of his financial goals. His portfolio is skewed heavily
towards real estate and debt, has a very low insurance cover and has not
aligned his investments with goals. At first glance, Acharya's financial future
seems dismal, with few positives to uplift his portfolio or plan. However, the
aggressive saving and investing over the years means that Acharya has nothing
to worry and will reach his goals without much effort. To help him streamline
his investments and make them work for him, financial planner Pankaaj Maalde
will prepare a draft that can act as a guideline for him.
Existing financial status
Acharya is salaried and
lives in Raipur with his 38-year-old wife, who is a homemaker, and two
sons--Ankit, 10, and Aarush, four.Acharya brings in an income of `1.5 lakh a
month, of which `1.18 lakh accounts for his total outgo. This includes `46,833
on household expenses, `11,000 on children's education, `10,000 given to his
parents, `16,042 as insurance premium and `34,000 as EMIs of two loans (home
and car). Acharya has two houses worth `60 lakh and `40 lakh, and also invests
`29,333 a month, which means he is left with a surplus of `2,792.
Acharya's goals are simple
and include building an emergency corpus, saving for both his children's
education and weddings, as well as for his retirement. Before Maalde makes any
suggestions, he will assess Acharya's insurance portfolio.
Insurance portfolio
Acharya has six traditional
insurance policies, for which he pays an annual premium of `1.9 lakh. Maalde
suggests he surrender two plans in his kids' names because their returns are
unlikely to beat inflation and the kids don't need to be insured. He should,
however, continue with the other four as a debt component of his portfolio.Since
he is not covered adequately for life, he should buy an online term plan of `1
crore for 20 years, and it will cost him `31,000 a year. As for health
insurance, Acharya only has a plan provided by his employer. Maalde suggests he
buy an independent family floater plan worth `10 lakh, which will cost him
`22,000 a year. Besides this, Acharya should buy critical illness and accident
disability plans worth `50 lakh each, which will cost `31,000 a year. This will
result in a monthly outgo of `13,500 and help him save `2,542 a month because
his earlier premium was higher.
Road map for the future
Before Maalde prepares the
financial blueprint, he suggests that Acharya repay his car loan of `6.5 lakh
from his cash holding since he is paying a high rate of 10.2%. This will help
him save the EMI of `11,000 and boost his investible surplus.
Now he can focus on his
goals, starting with a contingency corpus of `6.24 lakh which equals his six
months' expenses.This can be sourced from cash of `1.5 lakh, fixed deposit of
`35,000, stocks worth `1.5 lakh, debt funds worth `50,000 and gold ETF of
`25,000. This will amount to `4.1 lakh and is short of the corpus needed. But
this will have to suffice for now and Acharya can boost it after an increase in
income.
Next, Acharya wants to save
`37 lakh and `59 lakh for his sons' education in eight and 14 years,
respectively. For the former, Maalde has assigned the maturity amount from
three traditional insurance plans and an SIP of `18,000 in a balanced fund. For
the latter, he will have to start an SIP of `12,500 in an equity fund. These
will yield the given amount in the specified period.
For the children's
weddings, Acharya has estimated a need of `32 lakh and `50 lakh in 15 and 21
years, respectively. For the older son's wedding, Acharya is advised to start
an SIP of `4,500 in an equity fund and `1,500 in gold fund. For the younger
son, Acharya should start an SIP of `7,000 in an equity fund and `2,000 in gold
fund. However, since he will retire in 15 years, the investment period for the
latter goal will have to be aligned with this. These investments should easily
help him reach his goals.
Finally for retirement,
Acharya will need `4 crore. For this, Maalde has allocated his PPF and EPF
corpuses (`20 lakh), maturity amount from one insurance plan, equity fund value
of `10.5 lakh, and house worth `40 lakh. These will yield the desired amount in
15 years, and Acharya will not need to make any fresh investments to achieve
this goal.
