Haresh Patel, 46, stays with his homemaker wife, two children aged 17 and 12, and his mother, in his own house in Gandhinagar, Gujarat. He is self-employed and earns Rs 50,000 a month. After considering household expenses and insurance premium, he is left with a surplus of Rs 324. The two things that work in Patel’s favour are that he has his own house and does not have any liabilities in the form of loans.
Patel’s portfolio comprises a house worth Rs 1.2 crore and a plot of land worth Rs 9 lakh; equity in the form of mutual funds of Rs 69 lakh and stocks worth Rs 57,000; debt as Rs 30 lakh fixed deposit and debt funds of Rs 1 lakh, and cash of Rs 25,000. His goals include building an emergency fund, saving for the education of his children and retirement, buying a car and taking a vacation. Financial Planner Pankaaj Maalde suggests he focus on his primary goals and put off the goals of buying a car and taking a vacation for now.
Patel will require an emergency fund of Rs 3 lakh, which is equal to six months’ expenses. Maalde suggests that he also keep a medical buffer of Rs 3 lakh for his mother. To build this amount, he can allocate his debt fund (Rs 1 lakh) and fixed deposit (Rs 5 lakh). To amass Rs 27 lakh for his older child’s higher education in a year’s time, he should allocate his fixed deposit of Rs 25 lakh.
For the younger child’s education expenses of Rs 37.5 lakh in six years, he should assign his stocks and Rs 20 lakh of his mutual fund corpus. This will yield the desired amount in the specified period and no fresh investment is required. Finally, for retirement in 14 years, he will need Rs 2.65 crore and will have to allot his plot of land and the remaining mutual fund corpus for it. No additional investment will be required for this goal. He will, however, have to put on hold his goals of car and vacation till a further rise in income.
How to invest for goals
Annual return assumed to be 12% for equity, 10.5% for balanced funds and 7% for debt funds. Inflation assumed to be 7%.
Premiums are indicative and could vary for different insurers.
For life insurance, Patel has a traditional plan of Rs 15 lakh, and Maalde suggests he surrender this. Instead, he should buy a Rs 1 crore term plan, which will cost Rs 1,667 a month. For health insurance, he has a Rs 8 lakh family floater plan, but Maalde advises him to replace it with a Rs 10 lakh plan at a premium of Rs 2,000 a month. He should also buy a Rs 25 lakh critical illness plan and Rs 50 lakh accident disability plan for himself, which will cost Rs 1,500 a month.
Financial plan by Pankaaj Maalde Certified Financial Planner
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