Invest entire surplus to reach milestones
Bengaluru-based Banerjees will need to
invest aggressively in equity to ensure financial security.
It's good to make periodic checks on your progress
with financial planning.
Are you investing enough to be able to reach your
goals? Are you investing in the right instruments? Is your asset allocation
correct? Have you secured your risks?
Without such timely introspection, it is easy to be waylaid and miss your goals. This is why 36-year-old Saikat Banerjee has taken the right decision is seeking professional advice. Banerjee has a net worth of `28.7 lakh and is currently investing `16,500 a month in equity to reach his goals. However, he is left with an additional surplus, which should also be made to work if he wants to secure his finances. Financial planner Pankaaj Maalde explains how he should go about streamlining his finances.
Existing
financial status
Banerjee works in a private company and lives in
Bengaluru with his 32-year-old wife, Ipsita, and five-year-old daughter,
Shubhangi. While Ipsita is a homemaker, Saikat brings in a monthly income of
`1.17 lakh, which includes an annual bonus of `1.5 lakh. He manages to save
`23,708 and invest another `16,500 every month. His spending includes `40,000
on household purchases, `2,792 as insurance premium and `6,000 on his
daughter's education, while `4,000 is given to his parents and `24,500 goes as
EMIs of home and car loans, with the outstanding amount for both loans adding
up to `16.5 lakh.
Banerjee has been wise in buying a house worth `35
lakh. Besides this, he has `5.8 lakh in equity mutual funds, `25,000 in debt
funds, `3 lakh in the EPF, `80,000 in fixed deposit and `35,000 as cash. He can
align these funds and current investments in sync with his goals so that there
is no ambiguity about achieving them on time. His goals include building a
contingency corpus, saving for his daughter's education and wedding, building a
retirement kitty and going on a vacation. Before formulating a plan, Maalde
will consider the family's insurance needs.
Insurance
portfolio
Banerjee is acutely attuned to his insurance needs and
has a term plan of `1 crore. However, as per the need-based theory, he requires
a cover of `1.5 crore. So he should buy a `50 lakh term plan, which will cost
him `8,500 a year. Since Ipsita doesn't work, she will not need a life cover.
Banerjee has also done well to buy a health insurance
plan worth `5 lakh for himself and his family, as well as an accident
disability cover of `30 lakh. If Banerjee wants, he can increase the medical
plan to `10 lakh at the next renewal and it will cost him `25,000 a year. He is
advised to buy a critical illness plan worth `25 lakh, which will result in an
annual premium of `8,000.The additional premium of `2,458 can be sourced from
the surplus.
Road
map for the future
Banerjee needs to build an emergency corpus that
equals his expenses for three months. This will amount to `2.4 lakh and can be
sourced from his cash holding, fixed deposit and debt mutual fund corpus. He
will also have to allocate his bonus of `1.5 lakh for this year and invest the
entire sum in an ultra short-term fund.
Now, Banerjee can consider his other goals, the first
of which is to save `41 lakh for his daughter's education needs in 13 years.For
this, no existing asset or resource has been allocated and Banerjee will have
to start a monthly SIP of `10,000 in an equity fund to yield the desired sum.
As for his daughter's wedding, he has estimated a need
of `47 lakh in about 20 years. Again, Banerjee will have to start fresh monthly
SIPs of `3,500 in an equity fund and `1,500 in a gold fund or bond.Combinedly,
these investments will grow at an annual rate of 13% and 8%, respectively, to
deliver the required amount in the specified time frame.
Finally, for his retirement, Banerjee has listed a
requirement of `6.6 crore in 24 years. This can be accumulated by allocating
his equity fund and EPF corpuses and increasing his existing SIPs of `16,500 in
equity funds to `22,000 a month. These investments should take care of his
retirement kitty.
Since Banerjee is with a surplus of only `750 after
making the above investments, he cannot plan a `2 lakh vacation in two years.
He will have to put it off till there is a rise in his income. Banerjee is also
advised to shift to a cheaper home loan of 9.3-9.5%, instead of the existing
rate of 9.95%. Maalde also advises him to trim his big mutual fund portfolio to
4-5 schemes so that they are easy to monitor, besides shifting from balanced funds
to equity funds.
