Umesh and Poonam Sadekar from Pune are both 29 years old and have a small portfolio, but the early start to financial planning means that they will be able to reach their goals due to the long time horizon. While Umesh is employed and gets a monthly salary of Rs 45,000, Poonam is currently a homemaker, but will probably get a job and start earning by next year.
Umesh has bought a house worth Rs 45 lakh, for which he has taken a home loan of Rs 34 lakh and is paying an EMI of Rs 1,284. His portfolio includes an EPF corpus of Rs 54,000, mutual funds worth Rs 2.15 lakh and cash of Rs 75,000. His goals include building an emergency corpus, buying a car, taking a vacation, saving for his future child’s education, and his own retirement.
The financial planning team from Fincart suggests he first build an emergency corpus of Rs 1.09 lakh, which is equal to six months’ expenses. He can do so by allocating his cash of Rs 75,000 and, for the remaining amount, starting an SIP of Rs 3,205 in a liquid or an ultra-short duration fund for a year.
For a vacation next year, Umesh wants Rs 53,000 and can amass this amount by starting an SIP of Rs 4,268 in an arbitrage fund for the given duration. Next, Umesh wants to build a corpus of Rs 64.1 lakh in 20 years for the higher education expenses of his future child. He can do so by allocating his mutual funds and also starting an SIP of Rs 4,870 in a diversified equity fund for the specified period.
How to invest for goals
* Invest Rs 42 in the PPF every year. Total investment for this goal is Rs 17,006, but due to lack of surplus,
he can start with Rs 10,000 for now and increase it after a rise in income.
Annual return assumed to be 12% for equity and 8% for hybrid funds. Inflation assumed to be 6%.
Finally, for retirement in 29 years, Umesh has estimated a need of Rs 4.9 crore. For this goal, he can allocate his EPF corpus, which is likely to yield Rs 31.3 lakh. For the remaining amount, he will have to start an SIP of Rs 17,006 in a diversified equity fund. However, due to lack of surplus, he can start by investing Rs 10,000 for now and increasing the amount after a rise in income. He should also start putting in Rs 500 a year in the PPF.
Premiums are indicative and could vary for different insurers.
The couple has no life or health insurance and should buy both especially after the birth of their child. Umesh should buy a term plan of Rs 50 lakh, which will cost him Rs 856 a month in premium. For health insurance, he should buy a family floater plan of Rs 5 lakh and a top-up plan of Rs 20 lakh, both of which will cost him Rs 1,112 a month. Umesh is also paying a premium of Rs 1,667 a month for a Rs 7 lakh medical plan he has bought for his parents and should continue to retain it.
Write to us for expert advice
Looking for a professional to analyse your investment portfolio? Write to us at [email protected] with ‘Family Finances’ as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.