Name: Anubhav Gaur
Resides in Pune
Profession: Middle Management Cadre in marketing department of an MNC
(Rs 9 lakh)
Status & goals
Anubhavs family includes wife Preeti (38) who is a homemaker and children Ayush (12) and Shreya (9). Anubhavs parents also lives with him,though they are financially independent. Anubhav is contemplating investing in property. He wants to check his preparedness for his goals and how he will fare if he goes ahead with the property purchase. His main goals are purchase of property worth Rs 50 lakh,his childrens education,retirement and,if resources permit,upgrading his car.
A comprehensive financial plan securing couples retirement and a goal to purchase a dream home
Net monthly surplus
Life Insurance Premiums: Rs 60,000
Health Insurance Premiums: Rs 10,000
EPF: Rs 5 lakh
PPF: Rs 6 lakh
Fixed Deposits: Rs 5 lakh
Stocks & Mutual Funds: Rs 45 lakh
Savings accounts: Rs 50,000
Anubhav wants to invest in a property using MF and stocks portfolio and a home loan of around Rs 35 lakh. Currently,he has a home loan offer at 10.25% for 15 years. The approximate EMI works out to about Rs 38,000 per month.
Life Insurance coverage
He has Rs 23 lakh cover through a mixture of term and endowment plans. His wife has Rs 1 lakh endowment plan,while his children have Rs 1 lakh each in traditional child policy.
The coverage for the family is Rs 13 lakh combining the personal family floater and the employer cover. This is a good amount of cover. Anubhavs parents are not covered under any health policy.
Anubhav has very diligently built up his equity portfolio over the years. He has been saving and investing regularly,hence he has a decent portfolio of equity. More or less,it is a good mix and should be wisely managed to meet the goal.
The family needs an emergency corpus of Rs 3.15 lakh. They have Rs 50,000 in their savings account and Rs 5 lakh in the form of FD. This amount is sufficient to cover any emergency. They can continue to maintain these holdings.
Express tip Always keep 3-6 months of expenses in ready to use form. If funds are available,insurance premiums can also be kept aside.
Anubhavs family has sufficient health cover of Rs 13 lakh. But his parents do not have any health cover. Any major requirement for their treatment might cause a severe blow to his finances. Hence he should keep a separate corpus to fund any such requirement. He already has an FD of Rs 5 lakh which will be the first portion of emergency funds. The second can be a Rs 5 lakh investment in a short/medium term debt fund which can be withdrawn at a short notice. He can consolidate his existing MF portfolio to create this corpus.
Though an absolute figure of Rs 23 lakh worth of insurance cover looks good for Anubhav,it will not suffice. He needs to immediately go in for a term plan of Rs 1.15 crore for a period of 15 years. In the next 15 years,his children would have completed their education and would be capable of taking care of themselves. This should cost him about Rs 28,000 per year.
Express tip There should be sufficient life insurance cover at least till the children become independent to avoid any compromise on their education and careers.
They cannot afford a home of Rs 35 lakh as the EMI will be Rs 38,000 per month. Their current monthly surplus is Rs 27,500. In this surplus,he can afford a home loan of only about Rs 25 lakh. He can utilise up to Rs 15 lakh from his existing corpus to support this purchase. Even then,there will be a severe pressure on maintaining existing cashflows. And he will have to necessarily keep this property to fund his retirement; else his retirement goal will be compromised. He will have to compromise on his other goals if he buys this property now.
It is better if he can avoid purchasing property.
Express tip Sometimes property is purchased as an investment but is later gifted by parents to children at the cost of jeopardising their own retirement requirements.
They can allocate Rs 20 lakh out of their current MF and stocks portfolio towards the education goal for both children. This fund can be dipped into when the need arises to fund the requirement. No further investment is required for this goal.
For the marriage goal of both children,Anubhav can earmark one of his ongoing SIPs worth Rs 5,000 towards this goal. This will meet the requirement for funding the marriages of both the children.
Express tip Combination of existing assets and an ongoing investment can be a potent tool to meet child goal requirements.
Retirement corpus requirement will be met by PF,PPF and the existing equity portfolio,with some amount coming in from present insurance policies too. PF should contribute about Rs 94 lakh,PPF with an ongoing investment of at least Rs 50,000 per year should contribute Rs 43 lakh and the balance existing equity portfolio of Rs 20 lakh should grow to about Rs 2.69 crore. The shortfall in the corpus can be met by allocating Rs 5,000 from the ongoing equity mutual fund SIP and starting another SIP of Rs 5,000 per month towards this goal.
It is tempting to invest in property looking at returns the sector has given in the last few years. But Anubhavs position will become precarious with a loan to service. Besides,he will lock in his existing portfolio and future cashflows into an illiquid asset. This will make it impossible for him to meet his near-term goals like funding his childrens education.
Hence,it is not wise to make knee-jerk decisions on any investment,or be influenced by other peoples experiences.