Stagger investments to meet all milestones
Starting early with financial planning
will help Bharuch-based Singh shore up his finances with ease.
If you are in your 20s or 30s, investing in equity is
a good way to make your money work for long-term goals. Yet, the suggested
asset allocation of our current case study, 26-year-old Vikram Singh, sees a
drop in equity from 37% to 25%.This is because the recommended investment is
for short-term goals, which cannot be exposed to high risk. Hence, the
portfolio will be skewed towards debt for the time being, but will lean towards
equity after Singh meets his short-term goals. Financial adviser Pankaaj Maalde
explains how Singh can start planning for all his milestones in a systematic
manner.
Existing
financial status
Singh works as an engineer in Bharuch, Gujarat, and
brings in a monthly salary of `48,000. Of this amount, nearly `14,000 is used
up in household expenses, `6,758 goes as insurance premium and `7,500 is
invested. Singh doesn't have to shell out house rent because he stays with his
parents. He is single and plans to get married in a couple of years. His
monthly expenditure of `20,758 leaves him with an investible surplus of
`19,742, which makes for a high savings of 41%. This, along with his existing
investment, can be used to achieve his goals in a staggered manner.
Singh's goals include building an emergency corpus,
saving for his own wedding as well as that of his sister's, and planning for
his retirement. He has not included children's goals because these are too far
off and can be considered at a later date. “Right now, I want to know about the
investment options that can help me save for my and my sister's wedding,“ says
Singh. Maalde helps him identify these options, but before that he will go
through Singh's insurance portfolio and suggest changes.
Insurance
portfolio
Singh has one traditional insurance plan and one Ulip,
for which he is paying an annual premium of `81,000. Maalde suggests that he
retain the traditional plan as a debt component of his portfolio since its
returns are likely to beat inflation in the long term.However, he should
continue to pay the premium for the Ulip for five years and surrender it after
his sister's wedding. These two plans cover him for only `10 lakh, whereas
Singh needs a life cover of `50 lakh. Hence, he is advised to buy an online
term plan of this amount for 35 years and it will cost him `6,500 a year.
As for health insurance, he is covered for `3 lakh by
his employer, but should consider buying an independent plan of `3 lakh for
himself. He can also buy a top-up plan of `10 lakh with a `3 lakh deductible,
and these will cost him around `9,000 a year.Singh is also advised to buy
critical illness and accident disability plans worth `25 lakh, which will cost
him `9,750 per annum.This takes care of his insurance needs and he doesn't have
to bother about his parents' insurance since they are already covered for both
life and health.
Road
map for the future
As for his goals, Singh first needs to take care of
eventualities by setting up a contingency corpus. Equivalent to six months of
his expenses, this will amount to `1.38 lakh.Since Singh doesn't have resources
that can be allocated to this goal, he will have to start an SIP worth `7,000
in an ultra short-term fund for two years. This will yield the de sired amount.
Next, Singh wants to save nearly `4 lakh for his
wedding in two years. For this, he will have to start investing a sum of
`18,000 through SIPs in an arbitrage fund for the specified time frame. At an
annual rate of 6%, this will help amass the required amount for his wedding.
Singh also wants to have his sister married in about five years and for this goal
he wants to build a corpus of nearly `4.4 lakh. To achieve this goal, he can
allocate his Ulip corpus. He is advised to shift the fund to a balanced fund
for 3-4 years and then move to a debt fund.
Finally, for his retirement, Singh has estimateda need
of `5.85 crore in 34 years. To achieve this goal, he can allocate his EPF and
PPF corpuses, as well as the maturity amount of his insurance plan. He should
invest a minimum of `1,000 per annum in the PPF and reinvest the insurance
maturity in a diversified equity fund. These will yield nearly `2.29 crore in
the given time. For the shortfall, he will have to start an SIP of `7,000 in a
diversified equity fund for the specified term. However, he doesn't have enough
surplus to start investing for this goal, so he will have to do so after two
years when he has built his emergency corpus.
Singh also wants to buy a car worth `6 lakh in five
years, but doesn't have the resources to save for this goal. He should consider
it after a rise in his income.
