Buying house to hit other goals
Chennai-based
Panda will have to wait for a rise in income to start investing for other major
goals.
Niranjan Panda, 34, along with his wife, a homemaker, and their
two-year-old son, stay in a rented house in Chennai. He is in private service
and brings in a monthly salary of 68,000. After considering household expenses
of 26,000, house rent of 16,000, insurance premium of 13,350, and investment of
10,000, he is left with a surplus of 2,650. His portfolio comprises 8.75 lakh
in stocks, 1.18 lakh in mutual funds and 2.8 lakh in cash. His goals include
building an emergency fund, buying a house, saving for his child’s education
and wedding, and his own retirement.
Financial Planner Pankaaj Maalde suggests Panda start by building a
contingency corpus of 3.9 lakh. He can allocate his cash of 2.8 lakh for the
purpose and direct his mutual fund SIPs to the goal till the required sum is
amassed. This can be invested in an ultra short-term fund.
Next, Panda wants to buy a house worth 50 lakh. After building the
emergency corpus, he can work towards this goal by using his stock and mutual
fund corpuses of nearly 10 lakh to make a down payment. For the remaining 40
lakh, he can take a loan, and at 8.5%, his EMI will come to 32,200. This can be
cobbled up by using his current SIPs worth 10,000, saving on rent of 16,000,
and reducing his insurance premium outgo. This will, of course, imply that he
should opt for a ready-to-shift property. This also means that he will have to
put off most of his goals till a rise in income because he would have exhausted
his investible surplus.
For his son’s education, he needs 59 lakh in 16 years and, for his
wedding in 23 years, he needs 57 lakh. For these goals he will have to start
SIPs of 10,000 and 5,000 in equity funds. For the latter, he can start with the
surplus of 3,633 till a further rise in income. For a retirement kitty of 4
crore in 26 years, he has to start an SIP of 20,000 in an equity fund, but will
have to put it off till a rise in income.
Panda’s life insurance includes two traditional plans worth 17.5 lakh
and Maalde suggests he close both these. Instead, he should buy a 1 crore term
plan at a cost of 1,000 a month. For health insurance, he has a 3 lakh cover
provided by his employer and he should buy an independent 10 lakh family
floater plan at 1,667 a month. He should also pick a 25 lakh critical illness
plan and a 25 lakh accident disability plan at 1,000 a month.
