Focus on
primary goals, raise equity exposure
Palampur-based Kumars will
need to put off some of their goals till their income rises sufficiently.
Government jobs may be fast
losing their fascination, but there are still some monetary benefits one can
count on, such as insur ance and pension. While Palampur-based Kumars are
paying for their own insurance, both of them are entitled to pensions. This will
contribute significantly to their retirement corpus and reduce the financial
burden while planning for their goals. In their early 30s, Kumars have the
standard set of goals, but may not be able to invest for all of them at one go.
According to financial planner Pankaaj Maalde, they will need to stagger these
till they can supplement their income. Maalde shows them how to ensure
financial security by preparing a blueprint for them.
Existing financial status
Parveen Kumar is 33 and
stays in Palampur, Himachal Pradesh, with his 32-year-old wife, Asha, and
three-year-old son, Kartikeya. Both Parveen and Asha are in government service
and bring home a combined salary of `68,000. Of this, they spend `36,000 in
household expenses, `3,500 for their son's education, `7,175 as insurance
premium and `5,000 is given to Parveen's parents. After investing `2,000, they
are left with a monthly surplus of `14,325.
Kumars' net worth is low at
`4.1 lakh, with 91% of the portfolio in debt. Maalde suggests they move to
equity to make their money work for them if they want to achieve their goals.
The goals include building an emergency corpus, buying a house and a car,
taking a vacation, saving for Kartikeya's education and wedding, and building a
kitty for their retirement. Before Maalde analyses their finances and prepares
a plan, he goes through the couple's insurance portfolio and suggests some
changes.
Insurance portfolio
Kumars have four
traditional plans, for which they are paying an annual premium of `78,000.
Maalde suggests they surrender two of these plans because their returns are
unlikely to beat inflation, but should retain the other two as debt component
of their portfolio. The couple has insufficient insurance and Parveen should
buy an online term plan worth `60 lakh, while Asha should buy one worth `30
lakh for 30 years.These will cost them `12,000 a year.
When it comes to health
insurance, the couple has been more particular and has a family floater plan
worth `20 lakh. This means that they don't need any more medical cover. They
should, however, buy critical illness and accident disability plans worth `25
lakh each, which will cost them `12,000 per annum. The additional cost can be
taken care of by the premium they save on surrendering two traditional plans.
Road map for the future
Now, Kumars can start
planning for their goals, the first of which is building a contingency corpus
equal to their household expenses for three months. This amounts to `1.5 lakh
and can be built using their cash holding of `50,000 and insurance surrender
value of `1 lakh. This should be invested in an ultra short-term fund.
Next, Kumars want to buy a
house worth `40 lakh in 3-4 years. However, Maalde suggests they postpone this
goal till there is a sufficient rise in salary. This is because they do not
have enough surplus to invest for the down payment, let alone pay the EMI. It
will also impinge on their other goals like saving for their son's goals and
retirement. The same reasoning applies when it comes to buying a car and going
on a vacation in two and three years, respectively, and the couple will have to
put off these goals for now.
Moving on to the other
crucial goals of saving for Kartikeya's education and wedding, Kumars will need
`47.5 lakh for the former in 15 years, and `54 lakh for the latter in 22 years.
To achieve the education goal, Kumars will need to start investing a sum of
`10,000 in a balanced mutual fund via an SIP for the specified period. As for
the wedding, they will need to invest `4,000 in a balanced fund and `1,000 in a
gold fund through an SIP to amass the specified amount in the given period.
Finally, for their
retirement, Kumars will require `5.5 crore in 27 years. While nearly 50% of
their need will be taken care of by the pension, for the remaining, Maalde has
allocated their insurance maturity proceeds, and EPF and PPF corpuses. They
should continue to invest `1,000 in the PPF, and to meet the shortfall, they
will have to start with an SIP of `6,500 in a diversified equity fund. However,
since they don't have enough surplus, they can start with `3,000 and increase
the amount after a rise in their salaries. This will build the required corpus.
