Back on
investing track after a loan revamp
Pune-based Vimal Chheda can
ensure achievement of goals by increasing his investible surplus.
It is difficult to dilute
the fascination for real estate among Indian investors. The emotional
satisfaction and stability of fered by the purchase of a house tran scend all
other financial considerations and ground realities. This is probably the
reason Pune-based Vimal Chheda has bought a house despite the disruption it has
caused in his investing pattern. “My financial planning was disturbed in 2013
as I used all my savings to buy a house jointly with other family members. I
want to start investing again so I can achieve my goals,“ says Chheda. To help
him get back on track, financial planner Pankaaj Maalde will analyse his
portfolio and make the necessary changes.
Existing financial status
Chheda is 33 years old and
lives with his parents in Pune. He works with a private company and is not
married, but plans to do so in a year or so. He brings home a monthly salary of
`96,700, of which nearly `28,500 goes towards household and miscellaneous
expenses. He gives `5,000 to his parents and pays another `5,175 as insurance
premium. The biggest outgo is accounted for by the home loan EMI of `41,853 for
a loan of `26 lakh. Chheda also invests `9,000, which will be reallocated by
Maalde for optimum utilisation. This leaves him with a surplus of `7,172 a
month, which needs to be increased if he wants to invest for his goals.
Chheda's goals include
getting married in a year's time, buying a car and taking a vacation, saving
for his future child's education and wedding, and for his own retirement. Since
he cannot invest for all his goals simultaneously, Maalde suggests a staggered
plan. To begin with, however, he analyses Chheda's insurance portfolio.
Insurance portfolio
Chheda has two traditional
plans and an online term plan which cover him for `53 lakh.However, he needs an
additional cover of `75 lakh, for which he will have to pay an annual premium
of `8,000. As for the tradi tional plans, Chheda can retain them as the debt
component of his portfolio since their returns are likely to beat inflation.
As for health insurance,
Chheda has a cover of `2 lakh for himself and `2.5 lakh each for his parents.
He also has a group cover of `5 lakh. Maalde suggests that as far as his own
cover is concerned, he should port to a plan that doesn't have a room sublimit
and should raise the cover to `3 lakh. If he wants, he can also buy a top-up
plan of `10 lakh with a deductible of `3 lakh, which will cost him `10,000 per
annum. He can also buy critical illness and accident disability plans of `50
lakh each, which will cost `20,000 a year. The additional cost of `2,908 can be
met from his surplus.
Road map for the future
Before recommending a plan
for his goals, Maalde suggests that Chheda create an additional surplus by
rescheduling his home loan. He has made a mistake, says Maalde, by opting for a
short tenure and prepaying the loan instead of investing for his goals.So, he
should opt for a fresh loan of `26 lakh for a 20-year term, which will reduce
the EMI to `24,235, leaving him with a surplus of `17,618.
To begin with, Chheda wants
to save `5 lakh for his wedding in a year's time. For this, he can use his
fixed deposit of the same amount instead of making fresh investments in the
short time frame.
Next, Chheda should
consider building an emergency corpus equal to his six months' expenses. This
amounts to `3.96 lakh, and without allocating any existing resources, Maalde
suggests that Chheda build this sum in two years by investing `15,000 through
SIPs in an arbitrage fund. After this goal is accomplished, he can start
investing this amount for his other goals, such as his future child's education
and wedding.
For his retirement in 27
years, Chheda has estimated a requirement of `6.18 crore taking into account
his current lifestyle. To achieve this goal, Maalde suggests he allocate his
existing resources, including the PPF (`1.75 lakh), EPF (`3.25 lakh) and equity
fund corpus of `1.87 lakh. These will combinedly yield `1.99 crore in the
specified period. For the remaining amount, Chheda should start an SIP of
`15,000 in a diversified equity fund. He can also allocate the maturity
proceeds from his two traditional plans for his retirement kitty.
As for his other goals of
buying a car worth `5 lakh in three years and taking a vacation that will cost
`3 lakh in five years, Chheda doesn't have enough surplus to invest. However,
he can consider these with a rise in his income in the future.
