Planning Whiz April 2020


Geojit’s Investment Analyst, Gibin John, helps a couple with their financial planning. He advices them on how they can plan for their retirement, children’s higher education, daughter’s marriage expenses etc.

My name is Niranjan and I am 43 years old. I am working as Systems Engineer in a manufacturing firm. My family includes wife, Prerna (40), son Abhay (12), and daughter Arti (9).Children are studying in 7thstandard and 4thstandard respectively. Prerna is a teacher. My monthly salary is Rs. 65000 and Prerna’s salary is Rs.45000. Currently we are staying in a rented house. We have a house in our native place which was built eight years ago. We had taken a home loan of Rs.35 lakh @ 9.5% and are paying Rs.33000 as EMI. The loan tenure is 15 years and we had made some additional payments towards the principal and so this loan will end in June-2022. The property value is approximately Rs. 1crore.  Our monthly living expense is Rs. 40000 including children’s education fees. We are currently investing monthly Rs. 7500 in mutual fund and paying insurance premium of Rs. 3550 annually. Our savings account balance is Rs.200000.

Currently we are doing some investments based on advice from a few financial advisers. After reading this particular feature in an earlier edition, we have started seriously thinking about financial planning. We both are working in private sector therefore we have no defined pension plans after retirement. So mainly we need your advice for retirement planning. We are planning to retire at the age of 55. After retirement we will require around Rs.25000 per month to meet living expense. We have a few other goals which are:

  1. Accumulate an amount of Rs. 10 lakh each for Abhay’s and Arti’s higher education.
  2. Generate around Rs 15 lakh for daughter’s marriage.
  3. Buying a new car worth Rs.7 lakh after 4 years.

Request you to give us a road map to reach these goals.

Gibin John, a certified financial planner replies:

It’s good that you decided to plan for your goals and invest accordingly. Especially since your retirement is around 12 years from now. Looking at your portfolio, you haven’t made enough investments. We assume that your investments till now were used for house construction and other goals. Your existing investments of Rs 2 lakh in bank account has to be kept as emergency fund. This amount can be used to meet any unanticipated expenses which may come up in the future.

Firstly, let’s look at how to create a corpus for your kids’ education. Your expected cost for this goal is Rs.10 lakh for each. Considering the education inflation of 8%, the higher education cost will be  Rs.15 lakh and Rs.20 lakh respectively for Abhay and Arti by the time they reach that age. In your current financial situation, if you allocate the available surplus amount to fund the full corpus of these goals, it will affect other goals. So you may accumulate 50% of the corpus through investments and for balance amount you may consider taking an education loan. As per existing norms, the repayment of loan will start only after they get a job and so there will be enough time and payment can be done from their salary also. For funding 50% of the cost for Abhay’s education, you need to invest Rs. 10500 per month in Conservative debt mutual funds for next 5 years and for creating 50% corpus for Arti’s education you may invest Rs.5800 per month in equity oriented mutual fund for next 9 years.

Your next goal is accumulating money for Arti’s wedding expenses planned when she is around 24 years. The expected cost in current terms is Rs.15 lakh. You will have to rethink this cost. Our advice is to reduce this cost to Rs.10 lakh. If this cost is inflated at 6%, then it will become Rs.24 lakh at the time of marriage. For creating this corpus you will have invest Rs.6000 per month in equity oriented mutual fund.

Your next and important goal is retirement. You are planning to retire at the age of 55 and you expect Rs.25000 as post retirement expense. After 12 years, at the time of retirement, this monthly cost will become Rs.50304. To get this income during post retirement period, till the age of 80, you will have to build a corpus of Rs. 1.35 crore by the time of retirement. For creating this corpus within 12 years you will have to invest Rs.50000 per month till retirement. Now you have a surplus of Rs. 14500 after allocating the amount to other goals. Your home loan will end after two years this amount also can be moved for creating retirement corpus. Also reassign Rs.10500, which has been already allocated towards Abhay’s education after five years, for creating the corpus for retirement. We assumed that you will get 10% return from this equity oriented investment. Then you can create a corpus of Rs.1.17 crore at the time of retirement. This amount will meet the expense which will equal  the current monthly cost of Rs.21700.

You have not mentioned about the holding value of current mutual fund SIP. So we have not considered this value for our calculation. You may use this amount for any other goal or for buying a car after four years. Currently you are not staying in your own house and till your retirement this house will be vacant. If possible you may give this house for rent and generate some extra income. This rental income can be used for bridging the shortages for the goals as well as to fund your car purchase, which otherwise is not easily manageable. Hope you got some clarity and direction to manage your future.


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