Increase
investments to meet objectives
Pune-based Waghs may have
to stagger some goals, but the early start will ensure their fulfilment.
Clarity about goals at an
early stage in life is among the first steps of good financial planning.
While Pune-based Nilesh
Wagh has taken this essential step, there are several others that he needs to
take if he wants to ensure financial security for his family. He not only needs
to streamline his investments, but also increase these so that he can
accumulate the desired amount for his goals. Wagh must also improve his risk
coverage and allocate his existing resources in a way that they are linked to
the goals.Financial Planner Pankaaj Maalde will help him do so.
Existing financial status
Wagh is 31 years old and
lives with his 25-year-old wife, Mohini, in Pune. While his wife is a
homemaker, he works in a private company and brings in a monthly income of `67,000.
Of this amount, he spends `12,667 on household expenses, `14,750 on insurance
premium, sends `3,000 to his parents and invests another `5,000. He also gives
a big chunk of `29,700 as EMI for a `35 lakh home loan. This leaves him with an
investible surplus of `1,883.
Wagh's goals include
building a contingency corpus, saving for his future child's education and
wedding, and for retirement. He also wants to buy a car and go on a vacation in
a few years. However, Maalde suggests he focus on the primary goals and save
for the others after his income rises sufficiently enough to generate a bigger
investible surplus. Wagh's portfolio comprises 40% debt, which includes his
recurring deposit and EPF corpus, while 60% equity comprises primarily his Ulip investments.Maalde says that he should not mix his insurance and investment and
has suggested some changes in his insurance portfolio.
Insurance portfolio
As far as life insurance is
concerned, Wagh has one traditional plan and three Ulips, for which he is paying
a high annual premium of `1.77 lakh. Maalde suggests that he retain the
traditional plan as its returns are likely to beat inflation. He should,
however, surrender one Ulip and stop paying the premium for the other two.
Since he doesn't have sufficient insurance, he should buy an online term plan
of `1 crore for 30 years, which will cost him `10,000 a year.
As for health insurance,
Wagh has ignored it completely and should take steps to rectify this. He should
buy a family floater plan worth `10 lakh, which will result in an annual
premium of `10,000. He should also buy a `3 lakh insurance for his parents,
which will cost `20,000 a year. Besides these, he should buy critical illness
and accident disability plans worth `25 lakh each, and these will cost him
around `10,000 a year as premium. These changes in the insurance portfolio will
help him save `10,300 as premium, which can be added to the investible surplus.
Road map for the future
Now Wagh can concentrate on
his goals, starting with a contingency corpus of `3.12 lakh, which is equal to
six months' expenses. This can be sourced from his cash holding and fund value
of `3 lakh from one of the Ulips.
For his future child, Wagh
wants to save for the twin goals of education and wedding. In about 19 years,
he wants to have an education corpus of `43 lakh. To achieve this goal, he
should start an SIP of `5,000 in an equity fund and this will yield the desired
sum in the specified period.
For the child's wedding,
Wagh wants to accumulate `74 lakh in about 26 years. To meet this goal, Wagh
will need to start an SIP of `2,000 in an equity fund and `1,000 in a gold
fund. Considering an annual return of 13% from equity funds and 8% from gold
funds, Wagh should be able to accumulate the desired corpus.
For retirement in 29 years,
Wagh will need a sum of `4.58 crore assuming an inflation of 8% and current
lifestyle. To amass this, Wagh should allocate his EPF corpus and traditional
plan's maturity value. This is assuming that he will continue to contribute to
the EPF till he retires. Together, these investments will fetch about `2.35
crore in the specified time frame. For the remaining amount, he will have to
start an SIP of `6,000 in a diversified equity fund.
Wagh also has two other
financial goals: buying a `10 lakh car in a year's t ime and taking a `3 lakh
vacation in about four years. Both these goals are currently infeasible because
Wagh doesn't have enough surplus to invest and save for these goals.Hence,
Maalde suggests that he save for these after his income has increased.
