Planned
investing, early start to ensure security
Having realistic goals in
line with income means Mumbai-based Rathod will reach them comfortably.
If you have been putting
off investment citing low surplus, here are a few things you could learn from
Mumbai-based Hardik Rathod. Despite a low salary, this 26-year-old has
maintained a high savings rate, has started investing in mutual funds through
SIPs, is set to buy a house, has formulated clear, realistic goals, and has
bought the right insurance. Most of these are essential for good financial
planning. An early start also means that despite the current low net worth, he
will have sufficient time to save for his goals without stretching his limited
resources. To help him do this, financial planner Pankaaj Maalde will prepare a
plan that will act as a guideline.
Existing financial status
Rathod is a PSU employee
and stays in Mumbai with his parents and sister. He brings in a monthly salary
of `33,000 and has been provided government accommodation, which means he saves
on rent. He is not married, but plans to do so in 2-3 years.His current savings
include `2.5 lakh in the EPF, `1 lakh in nine stocks and `4,000 in mutual
funds, in which he has started investing recently. This means that his
portfolio currently has 70% debt and 30% equity.But as Rathod says, “Since I'm
single right now, my risk appetite is high and want to invest accordingly.“
Of his total income, Rathod
spends `12,000 on household needs, `458 as insurance premium and invests
another `4,000.This leaves him with a surplus of `16,542, which he wants to use
judiciously for all his goals. These include building a contingency corpus,
purchasing a house, going on a vacation after his wedding, buying a car and
saving for retirement. While it may not be possible to invest for all the goals
immediately, Maalde explains how he can optimise his investments.
Insurance portfolio
Rathod has been savvy when it
comes to insurance and has bought an online term plan worth `50 lakh. This
means he doesn't need to buy any more life insurance. As for health insurance,
he and his parents are covered by his employer for a sum of `4 lakh. Since this
facility will continue even after retirement, Maalde suggests he continue with
it and look for a higher cover only after he gets married. However, he should
consider buying an accident disability and a critical illness cover worth `25
lakh each, which will cost him `9,000 a year. This should take care of all his
insurance needs.
Road map for the future
Rathore can now start
planning for his goals, beginning with a contingency corpus that is equal to
three months' expenses and will amount to `82,500. Since he doesn't have any resource
that can be allocated to this, Maalde suggests he start investing a sum of
`3,500 in an arbitrage fund for two years to build the emergency fund.
Next, Rathod wants to go on
a vacation after three years when he is married and this goal is likely to cost
him `2.5 lakh at that time. Maalde suggests he start investing a sum of `6,000
in an equity income fund, which invests 25% in equity and the remaining in
debt. After two years, he can consider shifting to an arbitrage fund or a
recurring deposit. This will accumulate the required amount in the specified
period.
Rathod also wants to
purchase a house worth `30 lakh in a period of six months.With help from
family, he will be able to muster `3 lakh as down payment. He can then take a
home loan of `27 lakh, which will result in an EMI of `14,250. Since Rathod is
a PSU employee, he is entitled to a low rate of interest on the home loan,
resulting in a low EMI. Besides, he wants to rent the house, which will provide
him with a rental income of nearly `8,000. This amount can be used to fund some
of the goals once the EMI payment starts.
Finally, Rathod wants to
save for his retirement, which is nearly 34 years away. He has estimated a
requirement of `4.65 crore assuming expenses of `13,000 per month and an inflation
of 8%. To achieve this goal, Maalde has allocated the EPF corpus of `2.5 lakh
and stocks worth `1 lakh. These will yield `2.1 crore in the given period. This
is assuming that he continues to invest in the EPF and works till the age of
60. For the remaining amount, Rathod can continue with the SIP of `4,000 in a
diversified equity fund. He is, however, advised to shift his stock investment
to mutual funds.
Rathod also wants to buy a
car worth `5 lakh after about five years. Since he doesn't have the required
surplus to invest for it, Maalde advises that he put off this goal till there
is a rise in his income or after he gets married and reviews his finances with
his partner.
