Santosh J. lives with his homemaker wife and three-month-old child in his own house, in Navi Mumbai. He has taken a home loan of Rs 15 lakh, for which he is paying an EMI of Rs 24,500. He brings in a salary of Rs 55,000 a month, and after considering all expenses, he is left with a surplus of Rs 6,667.
His portfolio worth Rs 24.5 lakh comprises Rs 35 lakh of real estate, cash of Rs 25,000, debt in the form of EPF (Rs 2.5 lakh) and PPF (Rs 1.3 lakh), and equity in the form of stocks worth Rs 50,000. His goals include building an emergency corpus, buying a car, saving for the child’s education and wedding, and retirement.
Chintan Vora of 5nance suggests that Santosh build an emergency corpus of Rs 85,000, which is equal to four months’ expenses. He can allocate his cash and stocks, and save Rs 1,000 every month for one year. This amount should be invested in a liquid fund. He also wants to buy a car worth Rs 13.1 lakh in seven years, for which he can start an SIP of Rs 5,000 in a diversified equity fund, and increase the amount with the rise in income.
For the higher education of his child in 18 years, he has estimated a need of Rs 1.9 crore. For this, he will have to start an SIP of Rs 4,000 in a diversified equity fund from next year onwards, and do so for 16 years. He will also need to increase the amount to Rs 65,000 from the seventh year onwards. For the child’s wedding in 26 years, he will require Rs 1.1 crore. For this, he will have to start an SIP of Rs 5,000 after five years in a diversified equity fund. He should raise this amount to Rs 15,000 after six years and continue to invest for 16 years.
How to invest for goals
* Investment for child’s education goal will start from next year, for the child’s wedding after five years,
and for retirement after nine years.
** He should continue to invest `100 in the PPF every month.
Annual return assumed to be 12% for equity, 8% for debt funds. Inflation assumed to be 7%.
For retirement, Santosh will need Rs 6.7 crore in 26 years, and can assign his EPF, PPF and insurance maturity value. He will also have to start an SIP of Rs 15,000 in a diversified equity fund after nine years. He should invest for 14 years and increase the amount with a rise in income. After investing for all the goals, he will be left with a surplus after 12 years, which he can invest for wealth creation in an equity fund.
Premiums are indicative and could vary for different insurers.
For life insurance, Santosh has a traditional plan of Rs 6 lakh, which he can retain as a debt component of his portfolio. He should, however, buy a Rs 1 crore term plan for himself, which will cost him Rs 1,000 a month in premium. For health insurance, he has a Rs 2 lakh plan provided by his employer. Vora suggests he buy a family floater plan of Rs 5 lakh, which will come for a premium of Rs 1,000 a month.[“source=economictimes”]