I am 33 years old, married and have a five-year-old daughter. My wife is aged 30 and is employed. Together we have a take-home salary of Rs 1 lakh per month. I live in a joint family and my parents are independent.
My monthly expenses are Rs 15,000 and rest of our incomes is used to repay home loan, pay into investments, meet the annual insurance premiums and as savings for our international tour every year.
To meet my daughter`s education and marriage I have taken few insurance plans and the maturity proceeds of the plans would take care of both the goals. Recently I have availed a home loan for tenure of 10 years and our outstanding balance is Rs 25 lakh. To protect the home loan I have taken decreasing term insurance for the outstanding. Besides that I have taken a term insurance for Rs 70 lakh and my wife is covered for Rs 45 lakh.
As our parents are hale and healthy, I assume my life expectancy as 80 years. I wish to work till the age of 50 and at the time of retirement I wish to have a corpus of Rs 3 crore to manage the rest of my life.
For retirement, I am investing Rs 16,000 through SIPs in mutual funds such as HDFC Top 200, DSPBR Top 100, IDFC Premier Equity Plan, Reliance Opportunities, and Reliance Regular Savings. Apart from that, my portfolio has 12 schemes.
Beside mutual fund investments I have direct exposure to equity in blue-chip stocks and its current value is Rs 5.6 lakh. Based on the investment, please suggest if I am on track towards achieving my goal.
My current PF balance is Rs 5 lakh. We are covered by company group health insurance. But to be on the safer side I have taken a floater policy for a sum insured of Rs 5 lakh.
- Amit
Solution
A very small percentage of individuals in the age band of 30s plan well in advance towards goals such as education and marriage of their children. It`s nice to see your portfolio and you have attempted to reach the target not with risky equity assets, but through insurance.
But investors do need to understand that when your investment goals are long term in nature, instead of trying to reach your goals through debt it`s advisable to add equity component to keep cushion to meet unanticipated increase in the target amount.
Investors should keep in mind that debt investment through insurance should be a part of asset allocation and it should not be a primary source. The disadvantage with insurance investment is that to protect the life insured it needs to comprise on the return and it eventually increases your contribution towards the goals.
Retirement
It is true that without financial goals we would be leaving our future to chance. To tackle the ambiguities of future, establishing goal is mandatory.
My monthly expenses are Rs 15,000 and rest of our incomes is used to repay home loan, pay into investments, meet the annual insurance premiums and as savings for our international tour every year.
To meet my daughter`s education and marriage I have taken few insurance plans and the maturity proceeds of the plans would take care of both the goals. Recently I have availed a home loan for tenure of 10 years and our outstanding balance is Rs 25 lakh. To protect the home loan I have taken decreasing term insurance for the outstanding. Besides that I have taken a term insurance for Rs 70 lakh and my wife is covered for Rs 45 lakh.
As our parents are hale and healthy, I assume my life expectancy as 80 years. I wish to work till the age of 50 and at the time of retirement I wish to have a corpus of Rs 3 crore to manage the rest of my life.
For retirement, I am investing Rs 16,000 through SIPs in mutual funds such as HDFC Top 200, DSPBR Top 100, IDFC Premier Equity Plan, Reliance Opportunities, and Reliance Regular Savings. Apart from that, my portfolio has 12 schemes.
Beside mutual fund investments I have direct exposure to equity in blue-chip stocks and its current value is Rs 5.6 lakh. Based on the investment, please suggest if I am on track towards achieving my goal.
My current PF balance is Rs 5 lakh. We are covered by company group health insurance. But to be on the safer side I have taken a floater policy for a sum insured of Rs 5 lakh.
- Amit
Solution
A very small percentage of individuals in the age band of 30s plan well in advance towards goals such as education and marriage of their children. It`s nice to see your portfolio and you have attempted to reach the target not with risky equity assets, but through insurance.
But investors do need to understand that when your investment goals are long term in nature, instead of trying to reach your goals through debt it`s advisable to add equity component to keep cushion to meet unanticipated increase in the target amount.
Investors should keep in mind that debt investment through insurance should be a part of asset allocation and it should not be a primary source. The disadvantage with insurance investment is that to protect the life insured it needs to comprise on the return and it eventually increases your contribution towards the goals.
Retirement
It is true that without financial goals we would be leaving our future to chance. To tackle the ambiguities of future, establishing goal is mandatory.
If the monthly contribution required is higher than available surplus, investors might tend to take higher risk that eventually leads to more chaos. While calculating the future requirement it may be prudent to take long-term average inflation and provide for (any) increase in standard of living.
Take inflation at 7% and provide 2% for increase in standard of living. For instance, in your case, your current monthly expense of Rs 15,000 or Rs 1.8 lakh per annum if inflated at 9% (7% plus 2%) would make your annual requirement at the age of 50 to be Rs 7.8 lakh (corpus Rs 1.74 crore).
So your plan to build a retirement corpus of Rs 3 crore is on the higher side to meet this target you ought to save monthly a sum of Rs 56,600 at a return of 10%. Your current surplus would not permit you to do so.
If you want to build a corpus of Rs 1.74 crore you ought to save a sum of Rs 23,500 per month (inclusive of the existing SIPs) at a return of 10% after adjusting your current investment of Rs 10 lakh growing at same 10% for the next 17 years.
To meet your requirement, your retirement corpus should earn an interest of 2% above inflation.
For these calculations we have not taken your PF accumulation. That can be utilized to meet a shortfall in target.
Investment
Your current portfolio consists of 17 schemes and several of these schemes` investment objectives have overlaps.
It is generally advisable to restrict the number of schemes in the portfolio to 4-5. Your SIP investments are in the desired schemes and suggest that you continue with that.
Sell the remaining schemes and redeploy the proceeds in HDFC Top 200.
As you have taken adequate risk covers, don`t add term insurance to your portfolio.
Finally, it is advisable to review your portfolio at least once in six months to assess performance and to accommodate any change in lifestyle.
Take inflation at 7% and provide 2% for increase in standard of living. For instance, in your case, your current monthly expense of Rs 15,000 or Rs 1.8 lakh per annum if inflated at 9% (7% plus 2%) would make your annual requirement at the age of 50 to be Rs 7.8 lakh (corpus Rs 1.74 crore).
So your plan to build a retirement corpus of Rs 3 crore is on the higher side to meet this target you ought to save monthly a sum of Rs 56,600 at a return of 10%. Your current surplus would not permit you to do so.
If you want to build a corpus of Rs 1.74 crore you ought to save a sum of Rs 23,500 per month (inclusive of the existing SIPs) at a return of 10% after adjusting your current investment of Rs 10 lakh growing at same 10% for the next 17 years.
To meet your requirement, your retirement corpus should earn an interest of 2% above inflation.
For these calculations we have not taken your PF accumulation. That can be utilized to meet a shortfall in target.
Investment
Your current portfolio consists of 17 schemes and several of these schemes` investment objectives have overlaps.
It is generally advisable to restrict the number of schemes in the portfolio to 4-5. Your SIP investments are in the desired schemes and suggest that you continue with that.
Sell the remaining schemes and redeploy the proceeds in HDFC Top 200.
As you have taken adequate risk covers, don`t add term insurance to your portfolio.
Finally, it is advisable to review your portfolio at least once in six months to assess performance and to accommodate any change in lifestyle.
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