Need to speed up
investment process
Delhi-based
Kumars must increase their equity exposure to be able to reach their goals.
It is
easy to become complacent if you have a high income. The confidence in one's
ability to earn can make one spend freely and think the goals can be easily
achieved as they are a long time away. However, one must start saving and
investing the moment one starts working, and spending should not come at the
cost of one's life's goals. This is the reason Delhibased Kumars must pull up
their socks and start investing seriously in line with their goals. To help
them chart the course, financial adviser Pankaaj Maalde will prepare a
blueprint that they can follow.
Existing financial status
Ravi
Kumar is 36, while his wife Piya is 35 years old, and both are employed in
telecom companies. The couple also has a seven-year-old son. Together, they
bring in a monthly salary of `1.91 lakh, of which `72,500 goes in household
expenses. Another `10,000 is spent on the child's education and `3,514 on
insurance premium.They also pay an EMI of `78,078 for a loan of `84 lakh taken
for a house they have bought recently. After an investment of `8,000 in mutual
funds via monthly SIPs, they are left with a surplus of `18,908. This amount,
along with the existing resources and investment, must be put to hard work to
meet the goals. The current goals include building an emergency fund, saving
for the child's education and their own retirement.
Kumars'
portfolio comprises only 16% equity and includes `1.1 lakh in mutual funds. The
remaining is debt in the form of fixed deposits of `2.5 lakh and EPF corpus of
`3.5 lakh. These will be allocated for various goals and fresh investment
suggested.
Insurance portfolio
To begin
with, Maalde analyses Kumars' insurance portfolio, which comprises two
traditional insurance plans and one term plan. These cover Ravi for `78 lakh,
but Maalde suggests that he pick up an online term plan of `1 crore and Piya
`50 lakh for 25 years. These will cost `20,000 a year and can be sourced from
the surplus.Maalde does not suggest getting rid of the traditional plans as
their returns are likely to beat inflation and can form the debt component of
the portfolio.
Though
Kumars have done well to buy a `5 lakh family floater health plan, Maalde
suggests they buy a top-up plan of `15 lakh with a deductible of `5 lakh. Ravi
should also consider buying critical illness and accident disability plans
worth `50 lakh each, and Piya should buy the same worth `25 lakh each. These
will come for an annual premium of `33,000. This will take care of their
insurance needs.
Road map for the future
Before
starting to plan for their goals, Maalde suggests that they increase their
surplus. This can be done either by reducing their household spending or
increasing their home loan tenure from 20 to 25 years. The latter will reduce
the EMI and create a surplus of `4,678. For their first goal of building a
contingency corpus equal to three months' expenses of `4.9 lakh, they should
allocate their fixed deposit of `2.5 lakh. For the shortfall of `2.4 lakh, they
should start saving the surplus for nearly 8 months. Only after creating the
corpus should they start investing for other goals.
For the
goal of their son's higher education in 11 years, the couple wants a sum of `35
lakh. While no existing resource has been allocated, they will have to start an
SIP of `12,000 a month in a diversified equity fund to be able to amass the
required sum in the specified time.
For their
retirement, the couple will need a kitty of `8.3 crore in 24 years. Maalde has
assigned their mutual fund corpus, EPF and insurance maturity amount to this
goal. These are likely to yield `2.27 crore provided the couple continues to
contribute to the EPF till retirement. For the shortfall, they will need to
start an SIP of `31,000 in a diversified equity fund.However, since they
currently have a surplus of only `16,000, they can start with this amount and
increase it with a rise in their incomes. If the amount seems too large to
muster, they should think of cutting down the required kitty. They can also
review the situation after a few years.
