I am 33 years old and my household net income is Rs1.08 lakh. I invest Rs25,000 per month. My wife has a recurring deposit of Rs5,000 running for two years and I put Rs6,000 in the provident fund. I invest Rs1 lakh in three monthly income plans. My investment goals include a home loan in 2014 between Rs80 lakh and Rs1 crore, higher education for children estimated to cost me Rs30 lakh by 2030. I want to establish a business of my own and build a retirement corpus of nearly Rs1 crore. I tend to keep protection separate from investments so I am averse to unit-linked insurance plans (Ulips). But with lowering of charges and five-year lock-in, have Ulips become attractive?
Your savings appear to be less in comparison with your income, especially in view of the goals you have set for yourself. To achieve the same you need to increase your savings.
We have pushed your goal of buying a house with a Rs80 lakh loan by another year due to cash flow constraints. We are providing for your children’s education at Rs30 lakh future value in 2030 and Rs1 crore retirement corpus when you turn 58 years. While the sum appears a princely amount right now, that may not be the case. To give you an idea, assuming average inflation of 7%, the present value of Rs1 crore is equivalent to Rs18.42 lakh.
Assumptions: Growth rate has been taken at 5%, average inflation at 7% and interest rate at 10%. The savings will be used only for the earmarked goals. We’ve assumed you will save Rs40,000 per month.
Financial planning: In the early years you have a cash flow crisis. We have assumed you can take only 80% of Rs80 lakh as loan and the balance will be paid from your own sources. The time frame is just five years, hence the cash flow concerns. You have not mentioned whether this is your first home. Typically, the second house is considered a luxury and hence adequate risk can be considered while planning investments. Your total corpus when you retire is Rs1.87 crore. This amount will provide you for Rs16,000 per month present value till 80 years of age. That is why the need to save more.
Investment planning: We need to provide for a big expense in the next five years, so we need to make sure our savings are not very long-term. Also, we need to maintain a healthy interest rate to tackle high inflation. We need to consider investments in debt assets such as sweep-in accounts (wherever a bank balance is maintained), fixed maturity plans of one-five years and monthly income plans. This along with Public Provident Fund should form the key assets in the debt space. In the equity space, prefer systematic investment plans. Go for large-cap and equity-oriented funds. You need to follow this asset class actively. Plan to reduce your equity exposure as you come close to your goal of buying a house.
Surya Bhatia,Certified financial planner and principal consultant, Asset Managers
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