High savings, early start to help achieve goals
With
savvy allocation and smart investment, Hyderabad-based Sharma will not face
many problems.
Harsh
Sharma is an aware inves tor, with a balanced portfolio and clarity of goals.
He is also among the few people who has attempted to link his investments with
goals to ensure there is no ambiguity about reaching the targets. However, he
is not sure he is on the right track and has allocated the right resource to
each goal. “I want to know if I should retain the plots of land for my
daughter's wedding or assign a part of my stock holding for buying a house,“
says Sharma. To clarify Harsh's doubts, improve the performance of his
portfolio and streamline his investments, financial planner Pankaaj Maalde lays
out a blueprint that can serve as a guide.
Existing financial status
Sharma,
32, stays with his wife, Shilpy, 31, and six-month-old daughter, in a rented
accommodation in Hyderabad, Telangana.He is a healthcare researcher and brings
in `70,000 a month, while his wife also draws an income of `20,000. Of `90,000,
the couple spends `60,000 on household expenses, which includes rent of
`18,000. Besides this, `5,000 is their contribution to Sharma's parents and he
also pays `9,292 as insurance premium. After investing `15,000 in mutual funds
and the PPF, the couple is left with a meagre surplus of `708.
Sharma's
equity porfolio comprises `5.5 lakh in stocks, `2.37 lakh in equity funds and
`1 lakh as insurance fund value. His debt portion includes `3.4 lakh in the PPF
and EPF, `1.5 lakh in fixed deposit, and `30,000 in debt funds. He has also
invested `10,000 in gold funds and holds `30,000 as cash. He has also bought
two plots of land worth `10 lakh, bringing his net worth to `24.4 lakh.
Sharma's goals include building an emergency corpus, saving for the education
and wedding of his daughter, buying a house and saving for their retirement.
Before planning for his goals, Maalde takes a look at Sharma's insurance
portfolio and suggests some changes.
Insurance portfolio
Sharma
has an online term plan, two traditional plans, and a Ulip, for which he is
paying an annual premium of `1.06 lakh. Maalde suggests that he continue with
his term plan of `50 lakh, but as per need-based theory, he should buy an
additional term plan of `1 crore and his wife should pick a `25 lakh plan.
These will cost `15,000 a year in premium. Sharma should also surrender his
traditional plans and Ulip as the returns are unlikely to beat inflation.
As for
health insurance, Sharma's family is covered by his employer for `3 lakh and he
has independently bought a plan worth `3 lakh. Maalde considers it a good move
and suggests that during next renewal, he should raise this amount to `10 lakh.
He also recommends a critical illness plan worth `25 lakh and an accident
disability plan of the same amount, both of which will cost `12,000 in annual
premium. This should take care of his insurance needs.
Road map for the future
Sharma
needs a contingency corpus of `2.16 lakh, which is equal to his six months'
expenses. This can be sourced from his cash holding, fixed deposit and debt
fund corpus. It should be invested in an ultra short-term debt fund.
As for his
other goals, Sharma wants to buy a house worth `30 lakh in a year's time.For
the down payment of `10 lakh, he can sell his land and for the remaining `20
lakh, he can take a loan for 25 years, which will result in an EMI of `17,500
at 9.5% interest.This amount can be sourced from the rent he saves on shifting
to the new house.
Next,
Sharma wants to save a sum of `55 lakh for his daughter's education in 18
years. For this, he should invest `7,500 as monthly SIPs in an equity mutual
fund to yield the desired amount. As for the wedding, he wants `1.5 crore in 25
years. To meet this, he should allocate his gold fund corpus of `10,000 and
start an SIP of `8,000 in an equity fund for the given period. However, he will
have to defer this investment as he won't have any surplus left after planning
for the other goals.
Finally
for retirement, he has estimated a need of `7.6 crore in 28 years. To amass
this sum, he should allocate his PPF and EPF corpuses, stock holding, equity
funds and insurance value. These will yield `4.2 crore and he should continue
to invest at least `1,000 in the PPF. Additionally, he will have to start an
SIP of `10,000 in a diversified equity fund for the specified period.
