Planning is mandatory for the people with limited income.
By Suresh Parthasarathy.
I Manikandan aged 44 years working in a private company with net earnings of Rs 42000. Besides that my wife aged 36 home maker receives rental income of Rs 25000.To meet my monthly house hold expenses I need Rs 15000.Besides that I have monthly commitment of Rs 8254 towards car loan, EMI towards home loan is Rs 10,000 per month and Rs 4000 per month for my chit investment. I save Rs 8000 in Post office RD.I have taken family floater health policy for Rs 4 lakh and paying premium of Rs 9300 per annum.I have surplus of Rs 1.5 lakh after meeting my annual commitment towards my insurance policies. I have five insurance policies and my annual premium outgo is Rs 90,000 and sum insured is Rs 10 lakh.
My current savings in MF is Rs 71,000 and I have lent money to my close friend to the tune of Rs 3 lakh which I am likely to get next month.Pl suggest me a saving plan for the same.
My goals are
My son is currently at sixth standard I need to provide a sum of Rs 20 lakh for his engineering and Rs 30 lakh for post graduation.
Post retirement I should have a monthly pension equal to my current expenses of Rs 15,000. Suggest me how much I should save monthly to meet my pension requirement. My family health history is good and I may live up to 80 years.
I was investing in Mutual fund through systematic investment during 2007 and 2008.I stopped all my investment during the market crash. Suggest me few schemes and tell whether it is right time to start a SIPs in equity MF schemes and buying Gold ETFs.My MF portfolio consists of HDFC Top 200, HDFC Equity, HDFC Capital Builder, HDFC Prudence, Birla Sun Life International and HDFC Infrastructure.
Do I need to increase my health insurance? If so suggest me how much cover I need to take.Is my life cover of Rs 10 lakh is okay or do I need to increase the cover.
Solutions: You have not mentioned how long you are receiving the rental income. Assuming you are renting out for the past few years then there is big disconnect between your income and investment. For wealth creation, an individual needs proper financial planning no matter of income and what stage of life you are in currently. A proper Financial Planning can go a long way in helping you manage expenses and meet your goals. Quite often financial planning is mandatory for the people with limited income but in practice this segment ignores planning. Since some of your goals are having less than 10 years it’s high time you should have disciplined and planned approach.
Education: Since the graduation needs are spread across four years if you save Rs 12400 for next 84 months and if the investment earns a return of 10 per cent you can reach the target of Rs 15 lakh.For the short fall of Rs 5 lakh you ought to invest the hand loan of Rs 3 lakh at 10 per cent to meet the goal.
The post graduation need starts only in 2020, since the duration is long you can take higher risk in your investment and target for an annualised return of 12 per cent. If you can achieve such a return you need to save monthly a sum of Rs 13000 for next 120 months.
Retirement: The retirement planning is often overlooked and most of the individual tend to give attention to it once all their emotional goals are over. By the time it would be too late take risk bet on your investment. By trying to save for a shorter duration your monthly commitment will be stretched and in most case reaching target itself would be a complex task. In your case the current annual requirement of Rs 1.8 lakh inflated at 6 per cent, at start of 60 years you would need Rs 4.5 lakh and sequential at the age of 80 your annual pension need would be Rs 14.6 lakh.The current saving in insurance would not be adequate to meet the requirement. Since you have the rental income it has potential to take care of the two-third of retirement needs provided if the residential rental income grows matching inflation. For the remaining one- third of pension requirement from the age of 54 for next 48 months you need to save Rs 26,000 and it should earn a return of at least 8 per cent to reach Rs 15 lakh.Depoly this along Jeevan Shree maturity of Rs 10 lakh for your pension needs and it should earn two per cent over and above the inflation to meet your needs till age of 80 years. As a back up measure your maturity proceeds of other insurance plans need to be redeployed in an investment with small exposure to equity. Since you have not mentioned about your PF contribution and gratuity we have not factored the same in our calculation.
Investment: It commonly observed that investors start SIPs in mutual fund when markets are rising and discontinue their monthly commitment when equity in corrective phase. This strategy is against long term saving and the concept of SIPs.Do ensure that all your savings are linked to goals, but do keep track of your investments and take corrective steps if the investments start underperforming consistently for 4-6 quarters. The fresh SIPs can be continued with the existing portfolio barring Birla Sun Life International Fund. Since your investment universe of mutual fund is small you can stick with domestic MF scheme and this being most happening in compared to developed markets. With the current investment plan you would be short of funds hence you can discontinue thePost Office RD and continue chit investment up to maturity. The plan suggested to you is based on your income, do review the strategy once in 6-12 month.
Insurance: Based on your current salary and based on your goals we suggest you to buy a pure term insurance for Rs 80 lakh for next 15years and your annual premium would be Rs 19300.Regarding your health insurance the current sum insured of Rs 4 lakh appears okay, but once your income raises you can consider buying a top-up health insurance for Rs 3 lakh.