I am 43 years old, my wife is 38 and son is 11 years old. I have taken a home loan of Rs 15 lakh and it will continue for another 19 years. I started paying the equated monthly instalments (EMI) from last year and want to pay it off at the earliest. I have a traditional policy for which I pay Rs 2,840 per month and I have a child policy of Rs 5 lakh and the annual premium is Rs 32,000. I have Rs 40,000 in Public Provident Fund (PPF) account. I pay about 50% of my salary towards home loan. I have an insurance cover of Rs 3 lakh from my employer and Rs 1 lakh for my wife. I want to start investing and build a decent corpus. Suggest an investment plan so that I can accrue maximum returns?
You are paying half (50%) of your salary towards home loan. In addition, close to 20% of your income goes in servicing your insurance premiums. The balance 30% is assumed to be used as household expenses. The concern lies in the asset mix you have created.
First things first, while you are paying 20% of your income towards insurance premiums, you are still not adequately insured. What happens to your loan in case you have a medical problem or, in the worst case scenario, you die? Who will service the loan? You have not mentioned whether your wife is working or not. And assuming that she is working, it is not likely that she will be able to comfortably pay the EMI as well as provide for the household expenses and this is not counting your son’s expenses. Consider to stop the premiums for the child policy, provided it has completed its minimum premium payment term, and part of the premium can be used for buying a pure term cover for yourself.
You should ideally look at a sum assured which covers you for your loan amount in addition to three-four times of your annual income. Further, you are also having an insurance cover for your wife. You can even consider stopping the same, if the option exists depending on the kind of policy you have. The idea is to create cash flows for you to start saving regularly and at the same ensuring that the main earning member of the family is duly protected.
The amount of money which you can save every month, a part of the same can be invested every month in PPF. You can also start a monthly systematic investment plan in hybrid equity funds. You can pick from funds such as HDFC Prudence, HDFC Balanced, Birla Sun Life 95 and ICICI Prudential Balanced Fund. However, these funds carry a high equity exposure and hence you should look at these funds with a long-term horizon.
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