Stagger investment to
reach goals with ease
The large
number of goals means Sarvesh Singh will have to approach them in a phased
manner.
It is not
always easy to fit in all of life's goals in a limited salary. However, if one
starts planning early and invests in a systematic manner in the right instru
ments, it can ease the anxiety about the fulfilment of goals. You not only know
if and when you can realise the milestone, but also the exact sum you will need
to save to reach it. This is the reason Lucknow-based Sarvesh Singh has taken a
wise decision in seeking professional help. He has a long list of goals and has
invested in an arbitrary manner so far. With advice from financial planner
Pankaaj Maalde, Singh should not only be able to streamline his finances, but
also start investing in a more focused manner in line with his goals.
Existing financial status
Singh is
a 30-year-old banker, who lives with his homemaker wife, Minakshi, 28, and
two-year-old son, Shaurya. He also has as dependants his parents, aged 67 and
64, two sisters, aged 23 and 21, and a 24-yearold brother. He draws a monthly
income of `60,000 and his expenses amount to `37,584, which include household
expenses of `23,167, `14,000 as contribution to his parents and sisters, and
`417 as insurance premium. Singh hasn't bought a house yet and lives in a
rented accommodation, for which he is paying a rent of `8,000. He also makes an
investment of `9,000 as SIPs in mutual funds, and `2,000 in the PPF. This
leaves him with a surplus of `11,416. This amount, along with his existing
mutual fund investment, will be deployed to meet the goals.
These
include setting up an emergency corpus, saving for both his sisters' weddings,
building corpuses for the education and wedding of his son, saving for his
retirement, buying a car and a house, and going on a vacation. Singh's existing
asset base or investible surplus is not so big that he can start investing
simultaneously for all the goals. So, he will have to follow a staggered
approach of investing to be able to meet them. Barring the short-term goals of
his sisters' weddings in 1.5 and three years, he will have to start investing
for all the other goals only after three years.
Insurance portfolio
Singh has
done well to buy life insurance in the form of an online term plan worth `50
lakh. However, according to the need-based theory, he should purchase a `1
crore cover, which will cost him `10,000 a year.
As for
health insurance, Singh has a `4 lakh medical cover provided by his employer.
Maalde suggests that he keep this for his parents' medical needs as an
independent cover for them at this age will be expensive.For himself, his wife
and child, Singh should buy a `10 lakh family floater plan, which will cost him
`14,000 a year. Maalde also advises him to buy critical illness and accident
disability plans of `25 lakh each, which will result in a premium of `10,000.
This additional premium cost can be sourced from his investible surplus.
Road map for the future
Singh can
now start planning for his goals, the first of which is to secure a contingency
corpus worth three months' expenses. This amounts to `1.2 lakh and can be
sourced from his fixed deposit of `1 lakh and `20,000 of his cash holding.
As for
his sisters' weddings, he wants to accumulate a corpus of `5 lakh each in 1.5
and three years, respectively. For the older sister's wedding, Singh should
allocate his remaining fixed deposit of `1.5 lakh. He should also start a
recurring deposit of `20,000 for 12-18 months, for which he will have to stop
his existing investment of `11,000 in mutual fund SIPs and the PPF.This will
help create the required corpus in the given time frame. After reaching this
goal, Singh should direct `20,000 in a similar manner for his younger sister's
wedding in the remaining 1.5 years.
After
achieving these goals, he can focus on saving for his child's goals of
education and wedding, for which he needs `61.7 lakh and `54 lakh in 20 and 27
years, respectively. For the former, he can allocate `8.6 lakh of his stock
holding and invest it in a diversified equity fund for the given term. For the
latter, he can assign the remaining `1.4 lakh of his stocks and `2.3 lakh of his
mutual fund corpus to achieve the goal.
Finally,
for his retirement, he needs a corpus of `6.5 crore in 30 years. He will have
to allocate his PPF and NPS corpuses, and besides this, he will have to start
an SIP of `20,000 in a diversified equity fund. He should also continue to
deposit `1,000 in the PPF every year. This should help him reach the goal in
the given time.
Singh
will have to put off his goals of buying a car, a house, and taking a vacation
for now and consider these only after three years or after a sufficient rise in
his income and investible surplus.
