Need to invest high surplus
Simple goals and
high investible surplus mean that Hyderabad-based Krishna will achieve all his
goals.
A.M. Krishna stays
with his homemaker wife and two-yearold child in his own house, in Hyderabad.
He brings in a salary of 1.26 lakh a month. He has also taken a home loan of 23
lakh, for which he is paying an EMI of 40,500. After considering household expenses
of 35,000, insurance premium of 4,500, home loan EMI of 40,500 and investment
of 5,000, he is left with a surplus of 41,000. This amount should not be left
to idle in the bank and should be immediately invested in line with his
financial goals. Krishna’s portfolio, which is worth 89.4 lakh, comprises 75
lakh of real estate, 3 lakh cash, equity worth 45,000 in the form of stocks,
and debt worth 10.95 lakh in the form of fixed deposit (3 lakh), EPF (5.45
lakh) and PPF (2.5 lakh). His goals include building an emergency corpus,
saving for the child’s education, and his retirement.
Financial Planner Pankaaj Maalde
suggests Krishna build the emergency corpus of 4.8 lakh, which is equal to six
months’ expenses, by allocating his cash holding and fixed deposit. This should
be invested in an ultra short-duration fund.
For the higher education of his child
in 16 years, Krishna has estimated a need of 74 lakh. Maalde has not assigned
any of the existing resources for this goal. Krishna will have to start an SIP
of 13,000 in a diversified equity fund for the specified term to build the
desired corpus. For retirement, Krishna will need 4.25 crore in 22 years, and
can assign his EPF, PPF and stocks to this goal. In addition to this, he will
have to start an SIP of 25,000 in a diversified equity fund to achieve the
goal. He will also have to continue putting in 500 a year in the PPF till
retirement.
For life insurance, Krishna has three
traditional plans worth 6 lakh, for which he is paying a premium of 3,000 a
month. Maalde suggests he surrender all three plans. Since his life cover is
inadequate, he should buy a 1.5 crore term plan, which will cost him 2,083 a
month in terms of premium. As for health insurance, he has a 9 lakh cover by
his employer, for which he is paying 1,500 a month. Maalde suggests he end this
cover and, instead, buy an independent family floater plan of 10 lakh, which
will cost 1,667 a month. He should also buy a 25 lakh critical illness plan and
50 lakh accident disability plan, both of which will cost him 1,333 a month as
premium.
