Realign investments,
exit costly loan to meet goals
Mumbai-based
Ghildiyal will have to link his investments with milestones to ensure he
reaches them.
As a
rule, expensive personal loans should be avoided. The high cost of borrowing
means that not only do you end up paying more for your need, but also block the
EMI amount that can be invested in a high-return avenue. This is the reason
Mumbai-based Praful Ghildiyal should try to get rid of his personal loan at the
earliest and focus on his goal planning.Though Ghildiyal has done well in
taking a high equity exposure and securing his risks with insurance plans, his
portfolio requires some changes, which will be suggested by financial planner
Pankaaj Maalde.
Existing financial status
Ghildiyal
is 28 and works for a private company in Mumbai. He stays with his wife, Meena,
who is also 28 and employed, his parents and younger brother. The couple is
planning a child in about two years.While Praful earns `35,000 a month, Meena
brings in `8,000, bringing the total to `43,000. Of this amount, `18,083 is
spent on household expenses, `4,500 on dependants, `2,344 as insurance premium,
and `15,909 as EMIs for two loans: home loan of `11 lakh and personal loan of
`97,000. The family stays in its own house and Ghildiyal has taken a loan for
another house worth `22 lakh bought nearly two years ago. He also invests
`2,100 in mutual funds via SIPs. This leaves him with a meagre surplus of `64.
Besides
the house, his portfolio includes `5.5 lakh in 13 stocks, `93,000 in mutual
funds, `40,000 and `12,000 in the EPF and PPF respectively, and `15,000 as
cash.Ghildiyal's goals include building an emergency corpus, saving for his future
child's education and wedding, for his own retirement, buying another house and
taking a vacation. Before preparing a plan, Maalde looks at Ghildiyal's
insurance portfolio.
Insurance portfolio
Ghilidyal
has a term plan of `50 lakh and no other insurance plan. Maalde suggests that
he retain the plan, and recommends a `20 lakh online term plan for Meena as
well, which will cost `1,500 a year.
As for
health insurance, Ghildiyal is covered for `2 lakh by his company and has
bought a separate health plan worth `5 lakh for himself. He should consider
including his wife at the next renewal. His parents are already covered under a
separate plan. Maalde thinks he doesn't need any more medical plans, but
suggests he take an accident disability cover worth `25 lakh at a cost of
`3,000 per annum. He should also consider buying a crtical illness plan after a
rise in his income.
Road map for the future
Before
preparing a plan for Ghildiyal, Maalde suggests that he repay his personal loan
and free the EMI of `9,327, which can be invested for his goals. He can do so
by liquidating `1 lakh from his stock holding.This means his surplus, including
the existing investment, will rise to `11,491.
After
this, Ghildiyal should build a contingency corpus of `96,000, which is equal to
his three months' expenses. He can allocate his cash holding and sell stocks
worth `80,000 to build this corpus.
Now,
Ghildiyal can plan for his other goals, the first of which is to save for the
education of his future child. For this goal, he has estimated a need of `46
lakh in 20 years. To achieve this, he will have to start an SIP of `4,000 in an
equity fund, and at the rate of 13% a year, it will yield the desired sum in
the specified period.
As for
the wedding of his child after 27 years, he wants a sum of `64 lakh. Ghildiyal
will need to start another SIP of `2,000, of which `1,500 should be in an
equity fund and `500 in gold bonds or ETF. This will help accumulate the
required corpus.
Finally,
Ghildiyal will need `6.13 crore for his retirement in 32 years. This amount is
arrived at assuming household expenses of `20,000 a month in current terms and
8% inflation. For this, he will have to allocate his EPF, PPF, mutual fund
corpus and remaining stocks. This will yield about `3.5 crore. For the remaining
amount, he will have to increase his existing SIP from 2,100 to `5,000 in a
diversified equity fund. He should also continue investing at least `1,000 a
year in the PPF.
Ghildiyal
will have to put off his goals of buying another house and taking a vacation
till there is a sufficient rise in income.
