I am 38 years old; my wife and my two-year-old kid are dependant on me. My monthly net income is Rs 1.18 lakh. My monthly savings through systematic investment plans (SIPs) is Rs 18,000 (Rs 5,000 in ICICI Prudential Discovery, Rs 5,000 in HDFC Prudence, Rs 5,000 in DSP BlackRock Small and Mid-cap, Rs 1,000 in UTI Opportunity fund and Rs 2,000 in post office recurring deposit). I have a conventional insurance of Rs 16 lakh with annual premium of Rs 80,000. I have a term plan for Rs 50 lakh. My equated monthly instalment (EMI) for my home loan is Rs 31,000 (remaining four years) and car loan is Rs 12,000 (remaining two years). Please advise if my savings are in line with my corpus to take care of child’s education and my retirement.
We have taken a few assumptions for your plan. Besides the monthly saving of Rs 18,000, it is assumed that at maturity of car loan in two years and housing loan in four years, the equivalent of your EMIs will also be invested. It is assumed that you will continue to work till you are 58. Your expenses are taken as net of your income and existing savings and EMIs which translate to around Rs 50,000 per month. This amount is crucial as this becomes the base for your retirement need. Your child’s education is provided for when he/she turns 18 years and a sum of Rs 10 lakh each for a period of four years is considered at present value. Also, your average saving is expected to increase by 8% year-on-year. Inflation and interest rate has been assumed at 7% and 9%, respectively.
With all these numbers, you stand to achieve the financial targets. And you reach the critical mass—when expenses are higher than earnings—and the year you start withdrawing from your principal corpus is when you turn 70. The corpus available with critical mass is supposed to last till you are 82 years.
Now let’s consider your savings. Your fund selection is good. However, be careful as you have a mid-cap biased portfolio. The same is sustainable as all your needs are long-term. You should have the risk appetite as these funds have high volatility. Also, having an SIP of Rs 1,000 may not be the best idea. Consider increasing the same when the cash flow improves.
Post office recurring deposit does not fit your profile unless you have maintained it for liquidity. Instead consider a Public Provident Fund, where the same rate of interest is tax free.
You need to evaluate your insurance policy, where you pay Rs 80,000 as annual premium. The premium is too high for the cover. In case it is an investment plan, you need to consider the performance of the same. You can also consider increasing your term insurance as with net of loans, the sum assured appears on the lower side. Health insurance is highly recommended for you and your family.
Surya Bhatia, Certified financial planner and principal consultant, Asset Managers
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