Planning Whiz – August 2020


Geojit’s Investment Analyst, Gibin John, helps a 38-year-old professional with his financial planning. He advises him on how he can invest for his son’s higher education, build a corpus to buy a house, and accumulate a corpus for retirement.

I am 38 years old and work for a private firm.  I am married and we have a son who is studying in the 9th standard. My monthly net salary is ₹1,20,000. We are currently living in a rented house.  The rent is ₹15,000. The monthly living expense is ₹ 35,000. I have a monthly mutual fund SIP of ₹10,000. Following is a brief about my investments.

· Mutual fund value ₹6,25,000

· Savings account ₹3,00,000

· Stocks ₹2,75,000

· Bank FD ₹7,50,000

· Gold ornaments around 75 sovereigns

· LIC sum assured ₹5,00,000, maturity 2027

· My company provides a medical insurance of ₹5 lakh.

My goals in life are:

· Son’s higher education, for which I will require ₹10 lakh

· Buy an apartment worth around ₹45 lakhs as early as possible.

· Planning to retire at the age of 55 and expect a monthly expense of ₹25,000 during the retirement period.

Please guide us in achieving our financial goals.

Gibin John, a certified financial planner replies:

Good to see that you have created some corpus through investments in different asset classes. Now you can allocate the existing            investments and start new investments reach the different goals. This will help you follow a disciplined investment approach and also add value to your purpose of investing. As per your email only ₹10,000 is being invested regularly and the surplus is not channeled properly. This is will not help you in achieving your goals. The investments based on a prudent financial plan will help you achieve all your financial goals on time.

A perquisite for financial planning is to ensure that you have an emergency fund to meet any unforeseen expense without having to dip into your savings or investments meant for other goals. In your case we urge to keep at least ₹3 lakh balance in the savings account for handling contingency situations.

Your current income is ₹1,20,000. After deducting the expense from this, the amount available for investments is ₹ 70,000. And if you can manage this surplus in an effective way, you can easily achieve all your goals.

Your first financial goal is funding his son’s higher education for which you are expecting a cost of  ₹10 lakh. Considering an inflation rate of 8.50%, this cost would become ₹12.77 lakh by the time he finishes his secondary education. You can achieve this goal by utilizing your existing mutual fund     investment of ₹6.25 lakh and increasing your monthly SIP to ₹12,000 by adding another ₹2000 to your current SIP.

Another dream of yours is to buy an apartment worth ₹45 lakh. If you are planning to buy this apartment now, you may utilize your fixed deposit balance of ₹7.5 lakh, equity share worth ₹2.25 lakh, and existing gold worth ₹4 lakh. If you can pay around ₹14 lakhs, that is around 30% of the property value, as down payment then for the balance amount of ₹31 lakh, you will have to depend on a home loan. The monthly EMI for this loan would be ₹31,500 for 15 years at an average interest of 9%.

Another option which may be more beneficial in terms of total interest outflow is to postpone the purchase by two years. The value of the property might become ₹50 lakh due to inflation. But during the next two years the above-mentioned investments will become ₹15.15 lakh. During this period, if you are be able to invest ₹ 50,000/month in a recurring deposit or debt mutual fund and create a corpus of ₹12.69, your total corpus for this goal in next two years will be ₹28 lakh. In this scenario your required loan amount will be reduced to ₹ 20 lakh and the EMI for 15 years will be ₹ 22,000. If you are confident that you are secure in your current job then you may opt for the first option or else we suggest you opt for the second option.

You are planning to retire at the age of 55. And you are expecting a monthly expense of ₹25,000 during post retirement period. Now, expenses do not remain the same throughout lives. It goes up every year due to inflation. If this cost is increased at 6% p.a., the monthly expense will become ₹67,319 by the time you retire. For getting this inflation adjusted amount after retirement you need to create a retirement corpus of at least ₹1.80 cr. To accumulate this corpus, you should start investing in an equity-oriented Mutual Fund SIP of ₹32000 immediately. Also divert the SIP investment of ₹12,000 which you are investing for your son’s higher education once that goal is achieved. This allocation is critical and will form a significant part of the goal.

Though you have a company provided health cover, it is advisable to have a self-funded plan with a minimum cover of ₹10 lakh. This should continue even after your retirement. Looking at the goals you have in life, we advocate a life cover of minimum₹ 1.5 crore.

With this financial plan you will know how much to invest on a monthly basis to meet your goals and maintain your lifestyle when you retire!


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