Right time to start
planning for life goals
With a
long investing horizon, Bengaluru-based Kumar should stagger investments to
meet all goals.
A low net
worth may not always be an indicator of one's financial acumen. Due to age,
liabilities and temporary set backs, it may not reflect one's financial
condition accurately. However, disciplined investment in the right avenues is
bound to ensure security in the long run. For Bengaluru-based Akshay Kumar, the
net worth of `83,000 can be attributed to the fact that he has just started
working. With a good salary, high savings and not many liabilities, he is in a
good position to start investing. “As I've started working recently, I haven't
made any investments and want to know where to put my money,“ says the
22-year-old. To help him get started, financial adviser Pankaaj Maalde will
prepare a blueprint for him.
Existing financial status
Kumar is
a chartered accountant and earns a monthly salary of `61,000. Of this, he gives
`15,000 to his parents and `19,583 goes towards household expenses as he stays
with his parents. This leaves him with a surplus of `26,417, which needs to be
invested for his goals. Kumar's current investments include only `18,000 in the
EPF and a cash holding of `65,000.
Kumar's
goals comprise building an emergency corpus, saving for his wedding, buying a
car and a house, and setting up a retirement kitty. He has not included
children's goals as they are a long time away.Even if he excludes these, it may
not be possible to start investing for all the goals immediately. However,
Kumar has a long investing and saving horizon and can take care of his
financial milestones with a rise in salary after a few years. For now, Maalde
will start by analysing Kumar's insurance needs before preparing a plan.
Insurance portfolio
Kumar has
not bought any life insurance and, according to the need-based theory, Maalde
suggests that he purchase an online term plan of `1 crore for 40 years. This
will result in a premium of `10,000 a year and can be sourced from his surplus
amount.
As for
health insurance, Kumar and his parents are covered for `3 lakh by his
employer. Maalde suggests that Kumar retain this cover for his parents and buy
a `10 lakh top-up health insurance for himself, with a deductible of `3 lakh.
This will cost him around `9,000 a year in premium. Maalde also suggests that
Kumar purchase a `25 lakh critical illness plan and `25 lakh accident disability
insurance for himself, which will also cost `9,000 as annual premium.The
premium paid up to `25,000 for self and `30,000 for parents is available for
tax deduction under Section 80D.
Road map for the future
Before
starting with his other goals, Kumar needs to cover the risk of eventualities
by setting up a contingency corpus. He can build a fund that is equal to three
months' expenses and this will amount to `1.1 lakh.For this, Kumar can allocate
his cash holding of `65,000. Besides this, he will have to save his entire
surplus of `26,417 for nearly three months to make up for the shortfall.This
sum needs to be invested in an ultra short-term fund. The investment for all
oth er goals will begin only after three months when he has built the emergency
fund.
Now,
Kumar can start planning for his other goals, the first of which is building a
corpus of `14.7 lakh for his own wedding in about five years. To amass this
sum, Kumar will have to start a systematic investment plan (SIP) of `18,000 in
a balanced mutual fund. At 11.5% annual rate of return, he should be able to
accumulate this corpus in the specified time frame.
Next,
Kumar wants to save for his retirement, which is 38 years away. For this, he is
estimated to require a sum of `10.2 crore.Maalde has allocated his EPF corpus,
which is likely to grow to `2.6 crore in the given time. For the remaining sum,
he will have to start an SIP of `6,000 in a diversified equity fund for the
given period.
Kumar
also wants to buy a car worth `5 lakh (current value) in four years and house
worth `50 lakh after six years. Since he doesn't have enough surplus to start
investing for these two goals, he will have to wait till after his wedding,
when he has `18,000 at his disposal, or for an adequate rise in salary to be
able to achieve these goals. However, he has age and time on his side and can
review his financial situation after marriage, taking suitable action at that
time.
