Several goals to be put on hold
Delhi-based Sharma
will need to wait for a rise in salary to be able to achieve his financial
objectives.
Pawan Sharma is in government service
and stays in Delhi with his homemaker wife and two children aged five and one.
His monthly salary is 40,000 and he has bought a house worth 35 lakh—with an
outstanding home loan of 21 lakh—and a plot of land worth 15 lakh as
investment. Financial Planner Pankaaj Maalde suggests that since Sharma’s
portfolio is skewed towards real estate, he should sell the plot of land and
prepay the home loan. This will bring down the EMI by 10,000, which can be used
to fund one child’s goals. After household expenses, kids’ education, insurance
premium and investment, Sharma is left with a meagre surplus of 33. His goals incude building an emergency corpus,
saving for children’s education and weddings, buying a car and a house, taking
a vacation, and retirement. However, due to lack of surplus, he will have to
put off his goals of kids’ weddings, vacation, car and house till a rise in
salary.
Maalde suggests he start by building
an emergency corpus of 1.3 lakh by allocating his cash (50,000) and stocks (50,000),
and investing it in an ultra short-term fund. He can increase this corpus as
soon as there is a rise in salary. Sharma wants to build an education corpus
for his children—24 lakh for the older child in 13 years, and 31.5 lakh for the
younger one in 17 years. For the former, he will have to start an SIP of 6,500
in a diversified equity fund. For the latter, he will need to start an SIP of 5,000
in a similar fund. For retirement, he will need 2.3 crore in 27 years and can
allocate his EPF and mutual fund corpus, which are likely to yield 1.1 crore.
For the balance, he will have to start an SIP of 5,000 in a diversified equity
fund. Sharma also wants to save 77 lakh and 1 crore for his kids’ weddings, buy
a car worth 7 lakh, take a vacation worth 10 lakh after 12 years, and buy a 50
lakh house in 17 years. He will have to put these on hold till a rise in
income.
For life insurance, Singh has a term
plan worth 60 lakh, which is adequate for him and he doesn’t need more cover.
The family’s health is covered by the government and Sharma can do without
medical plans. He should, however, buy a 25 lakh accident disability plan,
which will cost him 333 a month. This will take care of all his insurance
needs.
