A.M. Krishna,38 years, stays with his homemaker wife, 34 years, and two-yearold child in his own house, in Hyderabad. He brings in a salary of Rs 1.26 lakh a month. He has also taken a home loan of Rs 23 lakh, for which he is paying an EMI of Rs 40,500. After considering household expenses of Rs 35,000, insurance premium of Rs 4,500, home loan EMI of Rs 40,500 and investment of Rs 5,000, he is left with a surplus of Rs 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 Rs 89.4 lakh, comprises Rs 75 lakh of real estate, Rs 3 lakh cash, equity worth Rs 45,000 in the form of stocks, and debt worth Rs 10.95 lakh in the form of fixed deposit (Rs 3 lakh), EPF (Rs 5.45 lakh) and PPF (Rs 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 Rs 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 Rs 74 lakh. Maalde has not assigned any of the existing resources for this goal. Krishna will have to start an SIP of Rs 13,000 in a diversified equity fund for the specified term to build the desired corpus.
How to invest for goals
For retirement, Krishna will need Rs 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 Rs 25,000 in a diversified equity fund to achieve the goal. He will also have to continue putting in Rs 500 a year in the PPF till retirement.
For life insurance, Krishna has three traditional plans worth Rs 6 lakh, for which he is paying a premium of Rs 3,000 a month. Maalde suggests he surrender all three plans. Since his life cover is inadequate, he should buy a Rs 1.5 crore term plan, which will cost him Rs 2,083 a month in terms of premium. As for health insurance, he has a Rs 9 lakh cover by his employer, for which he is paying Rs 1,500 a month. Maalde suggests he end this cover and, instead, buy an independent family floater plan of Rs 10 lakh, which will cost Rs 1,667 a month. He should also buy a Rs 25 lakh critical illness plan and Rs 50 lakh accident disability plan, both of which will cost him Rs 1,333 a month as premium.
Financial plan by Pankaaj Maalde Certified Financial Planner
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