I am 44 years and working in a private company. My net earnings amount to Rs 42,000 a month. My wife, 36, gets rental income of Rs 25,000 a month. She is a homemaker.
My monthly household expense is Rs 15,000. I have monthly commitments of Rs 8,254 towards car loan; Rs 10,000 for home loan EMI and Rs 4,000 towards chit investment. I save Rs 8,000 in post office recurring deposit. I have taken a family-floater health policy for Rs 4 lakh and am paying a premium of Rs 9,300 an annum.
I have a surplus of Rs 1.5 lakh after meeting my annual commitment towards my insurance policies. I have five insurance policies and my annual premium outgo is Rs 90,000 and the sum insured is Rs 10 lakh. My savings in mutual fund is Rs 71,000. I had given Rs 3 lakh to a friend as a loan and am likely to get the money back next month.
Please suggest a saving plan taking these factors into consideration.
My son is in Class VI. I need to provide Rs 20 lakh for his engineering and Rs 30 lakh for post graduation expenses. After retirement I should have a monthly pension equal to my current expenses of Rs 15,000. Please tell me how much I should save monthly to meet my pension requirement? My family health history is good and I may live up to 80 years.
I was investing in MF through systematic investment during 2007 and 2008. I stopped all my investment during the market crash. Please suggest a few schemes. Is it the right time to start SIPs in equity MFs and buy gold ETFs? My MF portfolio consists of HDFC Top 200, HDFC Equity, HDFC Capital Builder, HDFC Prudence, Birla Sun Life International and HDFC Infrastructure.
Is my life cover of Rs 10 lakh adequate or do I need to increase the cover?
Mani, Hyderabad, (name changed on request).
Solutions
You have not mentioned when you get the rental income. Even if you are receiving it only for the past few years, there is big disconnect between your income and investment.
For wealth creation, an individual needs proper financial planning, no matter what the income level or the stage of life.
Financial planning can go a long way in helping you manage expenses and meet your goals. It is mandatory for people with limited income. But, in practice, this segment ignores such planning.
As some of your goals have less than 10 years to play out, it is high time that you have a disciplined and planned approach.
Education: As the graduation needs are spread across four years, if you save Rs 12,400 for next 84 months and if the investment earns a return of 10% you can reach the target of Rs 15 lakh. For the shortfall of Rs 5 lakh you ought to invest the Rs 3 lakh that your friend returns in an plan that gives 10%. The outgo for post graduation starts only in 2020, so you can take higher risk in your investments and target an annualised return of 12%. If you can achieve such a return you need to save Rs 13,000 every month for next 120 months.
Retirement: Retirement planning is often overlooked. Most individuals tend to give attention to it once all emotional goals are accomplished. By that time it would be too late to take risky bets on investments. By trying to save for a shorter duration monthly commitment will be stretched and, in most cases, reaching the target would become arduous.
In your case, the annual requirement of Rs 1.8 lakh, if inflated at 6 per cent, would mean that at the start of 60 years you would need Rs 4.5 lakh. By the time you turn 80, your annual pension need would be Rs 14.6 lakh. The savings in insurance is not adequate to meet the requirement.
Your rental income has the potential to take care of about two-thirds of the retirement needs, provided the income grows to match inflation. For the remaining one-third, you need to save Rs 26,000 monthly from the age of 54 for the subsequent four years. The investment should earn a return of at least 8% to reach Rs 15 lakh. Deploy this along Jeevan Shree maturity proceeds of Rs 10 lakh for your pension needs and it should earn 2% above the inflation to meet your needs till the age of 80 years.
As a backup, your maturity proceeds of other insurance plans need to be redeployed in an investment with small exposure to equity. As you have not mentioned about your provident fund contribution and gratuity, we have not factored them.
Investment: It commonly observed that investors start SIPs in mutual funds when markets are rising, and discontinue their monthly commitment when equities are in a corrective phase. This strategy goes against long-term savings strategy and the concept of SIPs.
Do ensure that all your savings are linked to goals, but do keep track of your investments and take corrective steps, if the investments start underperforming consistently for 4-6 quarters. The fresh SIPs can be started with the existing portfolio barring Birla Sun Life International Fund.
As your investment universe of MF is small, you can stick with domestic schemes as overseas investing is fraught with uncertainties and cannot be easily monitored; in any case, India is one of the fastest growing markets. Thematic funds such as HDFC Infrastructure needs constant monitoring and profit booking, if there is any abnormal rise. If you are a conservative investor, stick to diversified funds. Our picks are DSPBR Equity, HDFC Top 200 and IDFC Primer Equity.
You will be short of funds with the current investment plan. Hence you can discontinue the post office recurring deposit and continue chit investments up to maturity.
The plan suggested to you is based on your current income; do review the strategy once in six to 12 months.
Insurance: Based on your current salary and goals, we suggest that you to buy a pure-term insurance for Rs 80 lakh for next 15years and your annual premium would be Rs 19,300. Regarding your health insurance, the current sum insured of Rs 4 lakh appears reasonable. But once your income rises, you can consider buying a top-up health insurance for Rs 3 lakh.
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