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Ask Mint Money | To strike a balance, see how much you can save and what you need

Ask Mint Money | To strike a balance, see how much you can save and what you need
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First Published: Mon, Dec 19 2011. 09 45 PM IST

Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
Updated: Mon, Dec 19 2011. 09 45 PM IST
I am 40 years old and earn Rs 12 lakh per annum. I have two daughters and I want to build a corpus of Rs 80 lakh for their marriage and education in the next 15 years. I also want to buy a house next year for which I can make Rs 40 lakh downpayment. However, I will take Rs 20 lakh as housing loan. How much should I save and invest to reach my goals?
—Prabhakaran
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
There are two ways to plan your savings. First, determine your current and future needs as it will help you determine how much savings are required. Second, work out your positive cash flows—net income over expenses—which then needs to be saved. The best way, of course, is to do a combination of both. Determine how much is your saving potential as well as how much you need to save to achieve your goals. In case of any mismatch, goals as well as the savings can be fine-tuned till a balance is achieved. For example, you may consider delaying your purchase of house by a year in case your cash flows are getting squeezed.
You need to save Rs 40,000 per month to achieve your goals. And your savings need to grow by a minimum of 4% year-on-year if the average interest rate is taken at 10%. This factors in a loan of Rs 20 lakh at an interest rate of 10.75% and a tenor of 15 years, besides a corpus of Rs 80 lakh after 15 years.
This savings amount can either increase or decrease based on how much you expect your savings will grow every year.
However, you have not factored in your own retirement planning. You should plan to save aggressively and try to achieve a higher savings growth rate.
There are few other factors that you should be aware of to make a comprehensive financial plan. You should have adequate life and health insurance covers. As a thumb rule, take a life insurance cover of 5-6 times of your annual income and review your insurance every five years. This insurance cover should be over and above the cover taken for loan amount you may take after one year. Cover your entire family with a health insurance even if your employer provides you the same. If you have one from the employer, go for a smaller cover that can be increased gradually.
Your savings can have high exposure to equity as you have long-term goals. You should start systematic investment plans in equity as well as equity-oriented funds. Identify funds and review the same periodically.
Some good picks are ICICI Prudential Focused Blue Chip and HDFC Top 200 in the large-cap space; Fidelity Equity and HDFC Equity in the diversified category; and IDFC Premier Equity and HDFC Mid Cap Opportunity in the mid-cap space. HDFC Balanced, HDFC Prudence, Birla Sun Life 95 Fund and Franklin Templeton India Dynamic PE are good hybrid and dynamic funds.
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
Queries and views at mintmoney@livemint.com
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First Published: Mon, Dec 19 2011. 09 45 PM IST