Link goals to investments
Few goals and
sufficient surplus mean Singh will be able to meet his goals without much
problem.
Sukumar Singh works in Hyderabad and
stays with his homemaker wife and two children, aged 11 and six. He gets a
monthly salary of 1.6 lakh, of which, 75,000 goes in household expenses and
kids’ education. Other expenses include insurance premium of 4,250 and loan
EMIs of 28,000. Singh has taken three loans—10 lakh for home, 5 lakh for car
and 3 lakh for gold. After considering investment of 50,000, Singh is left with
a surplus of 2,750. His portfolio includes equity worth 9.3 lakh in the form of
stocks and mutual funds, debt of 23.3 lakh as EPF and NPS, and cash of 3 lakh.
His goals include building an emergency corpus, saving for his children’s
education, and retirement.
Financial Planner Pankaaj Maalde
suggests he start by building an emergency corpus of 3.2 lakh, which is equal
to three months’ expenses. This can be funded by allocating the cash holding of
3 lakh and investing it in an ultra short-term fund. He should increase this
amount to six months’ worth of expenses at the earliest.
The next goal for Singh is
accumulating a sum of 24 lakh for his older child’s education in seven years.
This can be done by assigning a portion of the mutual fund corpus and starting
an SIP of 19,000 in a balanced fund for the specified period. For the second
child’s education after 12 years, Singh has estimated a need of 34 lakh. Maalde
has again assigned a portion of his mutual fund corpus for this goal and an SIP
of 9,000 in a diversified equity fund for the given period. For retirement in
18 years, Singh will need 4.7 crore and can allocate his stocks and mutual
funds, as well as EPF and NPS corpuses. These are likely to yield 3 crore. For
the balance, he will have to start an SIP of 23,000 in a diversified equity
fund.
For life insurance, Singh has one
traditional plan of 10 lakh. Maalde suggests he close this and use the
surrender value of 3 lakh to repay his gold loan. Since his life cover is
inadequate, he should buy a term plan of 1.5 crore, which will cost him 2,500
in monthly premium. As for health insurance, Singh has a medical cover of 7
lakh, and another 30,000 is provided by his employer. Maalde suggests he
continue with these and buy an accident disability plan of 50 lakh at a cost of
667 a month.
