Move to equity to
speed up goal fulfilment
Delhi-based
Agarwals should be able to reach their milestones by putting their surplus to
work.
Have you
put your financial planning on the back burner just be cause you don't know how
much and where to invest for your goals? The first step in such a situation is
to seek financial advice, and this is what Dehi-based couple, Upasana and Vivek
Agarwal, has done.They are currently invested primarily in debt. They have also
bought a house, but their equity stake is extremely low and needs to be
increased if they want to meet their goals. Since they are in their early 30s,
they have a long investment horizon and should tap the potential of equity to
give high returns in the long term. To help them frame their goals and opt for
the right investment avenue, financial planner Pankaaj Maalde will offer
advice.
Existing financial status
While
Upasana,31, is an academician, her husband, Vivek, also 31, is an IT
professional. The two stay in Delhi and have no kids as yet. They bring in a
combined salary of `93,000, of which `25,167 goes in household expenses and
`4,417 as insurance premium. The couple also gives `3,000 to dependants, and
`18,818 goes as EMI for an outstanding home loan of nearly `18 lakh. After an
investment of `500 in the PPF, they are left with a surplus of `41,098, which
needs to be put to judicious use for their goals.
These
include building an emergency corpus, saving for the future child's goals of
education and wedding, for their retirement, and for buying a car and a
house.Their existing portfolio comprises `3 lakh in the EPF and `1,000 in the
PPF, `50,000 as fixed deposit and `50,000 as cash. Before preparing a plan for
them, Maalde considers their insurance portfolio.
Insurance portfolio
The
couple has a traditional endowment plan and a Ulip, for which they pay an an
nual premium of `49,000. Maalde suggests that they discontinue the traditional
plan as its returns are unlikely to beat inflation, and continue with the Ulip,
reviewing it after five years. Also, since they are inadequately covered for
life, Maalde suggests Vivek buy an online term plan of `1 crore and Upasana buy
a plan worth `50 lakh.Both these covers will cost `18,000 a year in premium.
As for
health insurance, the two are covered by employer insurance worth `12 lakh.
However, they should consider buying an independent family floater plan worth
`10 lakh, which will cost `14,000 a year in premium. The couple should also
purchase critical illness and accident disability plans worth `25 lakh each,
which will result in an annual premium of `16,000.This should take care of
their insurance needs and they can start planning for their other goals now.
Road map for the future
The
Agarwals need a contingency corpus of `3.8 lakh, which is equal to their
expenses for six months. This can be built by allocating their cash and fixed
deposit and saving their surplus for six months. This amount should be invested
in an ultra short-term debt fund for higher rates and easier access. Investment
for other goals will start only after the corpus has been built in six months.
For the
goals of their future child's education and wedding in 19 and 26 years,
respectively, the couple will need `80 lakh and `1 crore. To meet the first
goal, the couple will need to start an SIP of `10,000 in an equity fund and,
for the second goal, they will will need to start an SIP of `5,000 in an equity
fund and `1,000 in a gold ETF or bond for the specified period.
For
retirement, the couple shall need `5.7 crore in about 28 years. For this goal,
their PPF and EPF corpus, as well as the Ulip fund value,has been allocated.
These will yield about `1.9 crore in the given period. For the shortfall, they
will have to start an SIP of `12,000 in a diversified equity fund and should
continue investing at least `1,000 a year in the PPF. This will help create the
required corpus.
The
couple also wants to buy a car worth `5 lakh, for which they can take a loan
for the given amount. At a rate of 10%, the EMI will amount to `10,600 which
can be taken from the surplus. For the purchase of another house worth `50 lakh
in 10 years, they will have to assess the situation after some time when their
income has risen.
