Focus on equity for financial security
Bengaluru-based
Srikant should stay on course with his equity investment to reach all his
goals.
Most people are not born good planners, especially
when it comes to finances. They do the best they can, saving and investing
erratically, and often learning along the way. Bengalurubased D.V. Srikant has
made several good financial moves so far, but there are also several flaws that
need to be rectified. While he has done well to buy a house and have a debt
portfolio, his equity investment has begun fairly recently and risk coverage is
not too healthy. He has taken the right decision in seeking professional advice
as it will help in course correction and lay out a road map for the future.
Existing
financial status
Srikant, 34, works in a private company in Bengaluru
and lives with his 25-year-old wife, B. Kirti Kumari, who is a homemaker.The
couple is expecting a child soon and want to streamline their finances. Srikant
brings in a monthly salary of `73,000, of which nearly `23,000 goes in
household expenses. Another `25,000 is taken up by the home loan EMI, while
`9,850 is spent as insurance premium and `1,500 is given to Srikant's parents.
Srikant also invests `7,500 in mutual funds through SIPs, leaving him with a
surplus of `6,150 a month, which needs to be deployed for his goals.
Srikant's goals include building an emergency corpus,
saving for the child's education and wedding, building a retirement kitty,
buying a car and taking a vacation.Before suggesting a course, Maalde will
consider Srikant's insurance portfolio and find ways to increase the investible
surplus.
Insurance
portfolio
Srikant has seven traditional life insurance plans and
is paying a high premium of `1.18 lakh a year for these. Maalde suggests that
he surrender all of these except one since the returns from the plans are
unlikely to beat inflation in the long run. The surrender charges are likely to
be high, but it is better to invest the saved amount in higher inter est
instruments. Also, as per the need-based theory, Srikant needs a life insurance
plan worth `1 crore. So, he should buy an online term plan of this amount for
25 years, which will cost him `10,000 a year.
As for health insurance, he has a `4 lakh plan
provided by his employer, but Maalde suggests that he buy an independent family
floater cover worth `10 lakh, which will cost him `19,000 per annum. He should
also purchase critical illness and accident disability plans worth `25 lakh
each, which will come for nearly `12,000 a year. The money for the additional
insurance policies can be sourced from the premium he saves by surrendering the
traditional plans.
Road
map for the future
After setting his insurance portfolio in order,
Srikant should consider securing his risks by building an emergency fund equal
to six months' expenses. This amounts to `2.88 lakh and, combined with an
additional medical buffer of `3 lakh for Srikant's parents, the corpus will
come to `5.88 lakh.This can be obtained from the `6 lakh fixed deposit and
should be invested in an ultra short-term fund.
Before preparing the financial blueprint for Srikant,
Maalde wants to consider ways to increase the surplus amount. To do so, he
suggests that Srikant extend his home loan tenure to 25 years for the
outstanding amount of `22 lakh as it will reduce the EMI from `25,000 to
`19,250. This will free up `5,750 to invest for his goals.
To start with, he wants to save `60 lakh for his
child's education in 18 years. No existing resource has been allocated to this
goal and Srikant needs to start a fresh SIP of `7,000 in an equity fund for the
specified time. As for the child's wedding goal in 25 years, he has estimated a
need of `1 crore, for which he should start an SIP of `4,000 in an equity fund
and `1,000 in a gold fund.This investment will yield the desired amount in the
given time frame.
Finally, for retirement, the couple will need a sum of
`4.78 crore in 26 years. To meet this goal, Srikant's EPF corpus, stocks and
mutual fund corpus have been allocated, which will combinedly yield `1.57
crore.For the remaining amount, he should increase his existing mutual fund SIP
from `7,500 to `12,500. This will create the desired corpus in the specified
time frame.
Srikant also wants to buy a car worth `5 lakh in two
years, besides going on a `4 lakh vacation in about four years' time. However,
since he doesn't have the required surplus to invest for these goals at the
moment, he should put them off for now and consider these after a rise in
salary in a few years.
