Invest the cash
corpus in line with all goals
The
retiral benefits from a previous job will stand Pune-based Pawar in good stead
while investing.
Laziness
and procrastination are often to blame for many an unmet goal. The high cost of
lost oppor tunity is the reason we repeatedly emphasise on not letting your
money idle in the bank. This is also the reason 44-year-old Pratap Pawar should
immediately put the large corpus lying in his savings account to work by
investing it. While Pawar has high savings and has already bought a house,
there are several flaws in his portfolio, which need to be corrected as they
will impact his future financial security. Besides the large cash holding, he
also has high expenses, a high debt exposure and has not invested in line with
his goals. To rectify these, financial planner Pankaaj Maalde will prepare a
blueprint that can serve as a guideline for Pawar.
Existing financial status
After
seeking retirement from the defence services, Pawar is now employed with a
private company in Pune, and brings in a monthly salary of `1.75 lakh.
He stays
with his homemaker wife, Bhagyalakshmi, 39, two sons aged 12 and 8 years, and
his parents. Though they have a house worth `1 crore in Pune, the family stays
in a rented accommodation due to easier accessibility to office and school.
Pawar has an outstanding home loan of `12 lakh for this house, and is paying an
EMI of `30,000 for the same. Besides this, Pawar has household expenses running
to `81,667, kids' education expenses of `20,000, another `20,000 given to his
parents, and `1,608 spent as insurance premium. This leaves him with a surplus
of `21,725 every month.
Pawar's
goals include building an emergency corpus, saving for the education and
weddings of his sons, taking a vacation, buying a car, and saving for
retirement. His portfolio includes `47 lakh in cash, `10 lakh in fixed deposit,
another `10 lakh in stocks, `3 lakh in EPF and `50,000 in gold. Before Maalde
explains how to use these resources, he will assess the insurance portfolio.
Insurance portfolio
Pawar has
two traditional life insurance plans, for which he is paying an annual premium
of `19,000 and which offer him a very low cover. Maalde suggests he retain
these as their returns are likely to beat inflation. However, he needs to buy
an online term plan worth `2 crore for 20 years, which will cost him `30,000 a
year.
As for
health insurance, his current employer offers him a cover of `6 lakh for his
entire family. He and his family are also covered by the government and, hence,
he doesn't need to buy any other medical cover. He should consider purchasing a
critical illness plan worth `25 lakh and an accident disability plan worth `50
lakh, which will cost him `22,000 a year. The additional premium cost can be
sourced from the investible surplus.
Road map for the future
Pawar
needs to have a contingency corpus worth six months of expenses, which amounts
to `7.8 lakh. For this, Maalde has allocated `8 lakh from his fixed deposit,
which should be invested in an ultra shortterm fund as well as an arbitrage
fund.
Before
Pawar can start planning for his other goals, Maalde suggests he utilise his
retiral benefits by fully repaying his outstanding home loan. This will free up
`30,000 being paid as EMI and can be used to invest for his goals. Maalde also
suggests that Pawar redirect his stock holding to mutual funds as it is a safer
instrument.
The first
thing Pawar wants to do is take a vacation worth `8 lakh in five years. For
this, he should invest `3.5 lakh from his cash holding in an equity income
fund. He should also start an SIP of `5,000 in the same fund for four years to
yield the desired sum in the given time.
Next,
Pawar wants to save `24 lakh and `32 lakh for his sons' higher education when
they are 18. He should allocate `12.5 lakh and `11 lakh from his cash holding
and invest this amount in balanced funds for six and 10 years, respectively, to
accumulate the desire corpus. For the sons' weddings, Pawar wants `27 lakh and
`37 lakh in 13 and 17 years, respectively. To meet these goals, he should
assign `5.5 lakh and `4.5 lakh from his cash corpus in diversified equity funds
to amass the given amounts.
As for
his retirment, Pawar will need `4.6 crore in 16 years and Maalde has allocated
his stock holding of `10 lakh and EPF corpus of `3 lakh, which should be
invested in a diversified equity fund. He will also have to start an SIP of
`40,000 in the same fund to get the desired corpus.
As for
the goal of buying a car, he will have to put it off till a further rise in
income.
