All goals within reach due to an early start
A high savings ratio, combined with a good start,
translates into a smooth journey for Bagri.
While equity is recommend ed as the instrument of
choice when it comes to long-term planning, invest ing in stocks is not for
everyone. Unless you have the expertise and time, it is best to leave equity
management to professionals in mutual funds. This is why financial planner
Pankaaj Maalde suggests that Delhi-based Raghav Bagri sell his 11 stocks and
invest the amount in equity funds. This is one of the several suggestions
offered to Bagri to ensure that he reaches his financial milestones with ease.
Existing financial status
Bagri is 27 years old and lives with his 50-year-old
mother in their own house in Delhi. He plans to get married in a year or so.
Bagri works in a private company and brings home a monthly salary of `85,000.Of
this amount, `30,000 is used for household purchases every month, and `11,000
is paid as EMI for a home loan. Besides these, Bagri pays an insurance premium
of `6,583 and invests another `5,000 in mutual funds, which he has started only
recently.This leaves him with a healthy surplus of `32,417 every month, which
needs to be invested in a way that the amount for each goal is clearly
earmarked.
Currently, Bagri's portfolio includes `2 lakh in cash,
`50,000 in the EPF and `3.5 lakh in stocks. His goals are the standard ones,
comprising a vacation and an emergency fund, saving for retirement and for his
future child's education and wedding.He doesn't need to worry about the house
since he already has one. Before Maalde explains how to invest for these, he
will set his insurance portfolio in order.
Insurance portfolio
Bagri has two expensive traditional plans, which cover
him for `35 lakh and for which he is paying a high premium of `73,000 a year.
Maalde suggests he buy an online term plan of `1 crore for 35 years, which will
cost him around `10,000 a year. As for health insurance, Bagri is depending on
his employer, who provides him a `2 lakh cover. Maalde suggests he buy a `3
lakh cover for himself and a `10 lakh top-up with a deductible of `3 lakh. He
should also buy a critical illness plan worth `25 lakh and an accident
disability plan of equal amount, and these will cost about `27,000 per annum.
Bagri should also consider increasing his mother's `2 lakh cover to `3 lakh at
next renewal. These plans will take care of their insurance needs for now and
the additional premium can be easily funded by his investible surplus.
Road map for the future
Bagri needs to have a contingency corpus of `3 lakh,
which is equal to his six months' expenses. This can be sourced from his cash
holding of `2 lakh, besides saving his surplus of `32,417 for three months.
This amount should be invested in an ultra shortterm fund.
Bagri will have to start investing for all his other
goals only after three months, when he has built the contingency corpus. As for
his goals, Bagri wants to begin with a vacation, for which he wants to save
`3.78 lakh in three years. To achieve this goal, Maalde suggests he start a
fresh monthly SIP of `9,250 in an equity income fund, which has a maximum
equity exposure of 25%. He should stay invested in it for two years and in the
third year he should move the sum to an arbitrage fund. This will help him
amass the required amount in the specified time frame.
Next, Bagri wants to save for his future child's
education in 20 years. He estimates a need of `1 crore, for which no existing
resource has been allocated. Bagri will have to start an SIP of `8,000 in an
equity fund to be able to accumulate the desired amount.
As for the wedding expenses of his child in 27 years,
he wants to be ready with a sum of `1.3 crore. Again, no existing resource or
investment has been assigned to this goal.Bagri should start an SIP of `4,000
in an equity fund and `1,500 in a gold fund. This will fetch the desired amount
in the specified time frame.
Finally, for his reitrement, Bagri wants to build a
kitty of `10.7 crore in 33 years, assuming an inflation of 8% and with a life
expectancy of 80 years. To build this corpus, Maalde has allocated his stock
holding, EPF corpus and insurance maturity value.These will yield `3.62 crore
in the specified time frame. For the shortfall, Bagri needs to start investing
in a diversified equity fund via an SIP of `11,000. He should also sell his
stocks and invest in mutual funds.
