Need to
stagger plan for realising all goals
Long-term goals mean that
these can be achieved in a phased manner by the Chennai-based couple.
As with most Indians,
Chennai based Senthil Kumar is starting with financial planning in his mid-30s.
Considering that 97% of his portfolio is in debt, he has clearly lost the
advantage of putting his money to work at an early stage. However, being a diligent
saver with long-term goals, his primary financial objectives are still within
reach, provided he rejigs his asset allocation, aligns his investments with
goals and takes adequate risk cover. “I want to buy a house immediately and
it's my top priority,“ says Kumar. This means that he will have to stagger his
investments to reach his other goals, and may have to put off the low priority
ones till a rise in income. Financial planner Pankaaj Maalde will lay out an
investment charter to ensure financial security for Kumars.
Existing financial status
Kumar is 34 years old and
is employed in a private firm, while his 28-year-old wife Priyadarshini is a
homemaker. They are planning a child in a year and Kumars' parents are also
dependent on them. Kumar brings home a monthly salary of `74,500, of which
47,475 comprises the total expense.His monthly outgo includes household
expenses of `15,000 and rent of `12,000.Besides this, he pays an insurance
premium of `5,875 and `10,000 to his parents, who are aged 63 and 55. He is
also investing a sum of `4,500, which leaves him with a surplus of `22,525.
Kumars' goals include
building an emergency fund, buying a house, saving for their future child's
education and wedding, as well as for their retirement, buying a car and going
on a foreign vacation.
Insurance portfolio
Kumar has five traditional
life insurance plans and one Ulip, for which he is paying an annual premium of
`70,000 for a cover of `13 lakh. Maalde suggests that he retain two of the five
traditional plans since their returns are likely to beat inflation, but should
surrender the other three. He should also stop paying the premium for the Ulip.
However, since his life cover is inadequate, he is advised to buy an online
term plan worth `1 crore for 30 years. It will cost him `10,000 a year.
As for health insurance,
Kumar and his wife are covered by his employer for `2 lakh. Maalde suggests
that he buy a family floater plan worth `10 lakh, which will cost him `14,000 a
year, and a `5 lakh cover for his parents, which will come for an annual
premium of `26,000. He is also advised to purchase critical illness and
accident disability plans worth `50 lakh each, which will cost him `24,000 a
year. All these policies will result in an additional insurance premium of `1,146,
which can be sourced from the surplus.
Road map for the future
Now Kumars can plan for
their other goals, starting with a contingency corpus of `2.1 lakh, which is
equal to their three months' expenses. For this, Kumar can assign his cash
holding of `2.3 lakh, and is advised to raise this amount to six months' worth
of expenses once his income rises.
Next, Kumars want to buy a
house worth `45 lakh in six months. This prioritisation means that the couple
will have to push back the planning for some of their other goals, but since
these are over the long term, they can continue with it. Kumar wants to pay a
down payment of 20%, which will amount to `9 lakh. Kumar can assign his fixed
deposit of `7.52 lakh and should save his current surplus of `22,525 for six
months to generate the required amount. After this, he will have to take a loan
of `36 lakh, for which the EMI will come to `31,500 at 9.5% rate of interest
for 25 years. This amount can be sourced from the surplus and saving on house
rent after the couple shifts to the new house.
Next, the couple needs
`4.84 crore for retirement in 26 years. Maalde has allocated the EPF corpus and
mutual fund value for this goal. Kumar will also have to start an SIP of
`14,000 in an equity diversified fund. However, since he doesn't have enough
surplus, he can start with `4,000 and increase it after a rise in income.
For their child's education
and wedding in 19 and 26 years, respectively, the couple has estimated a need
of `43 lakh and `74 lakh. To achieve these goals, Kumar will have to start SIPs
of `4,500 and `3,000 in equity funds, respectively, but can only start after a
rise in income. As for buying a car and taking a vacation, the couple shall
have to put these off for now and concentrate on the more important goals.
