Geojit’s Investment Analyst, Gibin John, helps a couple, who have been investing for many years with their financial planning. He advises them on how they can meet their future goals like their buying a new house, managing their loans, retirement, etc.
I am Sudheer. I am keeping my query short and simple. I am a software engineer, aged 32, drawing a net salary of ₹86,000 every month after all deductions. My wife, aged 27, lost her job due to the coronavirus pandemic and is now working for a small company and she is earning around Rs 30,000/- per month.
Following are my savings:
Together we have ₹21,00,000 in the share market presently. I am also investing ₹5,000 monthly in ICICI Prudential blue chip fund (growth) started on 21-09-2015. We have one Sovereign Gold Bond for ₹ 25000 (from 31-12-2016). My NPS contribution is around ₹12,500 per month. I have an LIC policy started in 2010 for ₹15,000 per year and the sum assured is ₹1, 60,000 and it matures in 2026. I paid for this policy till 2015 after that I could not continue. I do not know what to do with that policy. The second LIC policy is ₹2,000 quarterly, the sum assured is ₹ 1,00,000, maturity in 2026, and this I am continuing. There is another LIC policy with ₹ 6700 monthly, regularly paying starting 2017 with money back of ₹ 5,00,000 every 5 years and sum assured is ₹10 lakhs in 2037. I have Postal Life Insurance for ₹2000 monthly, its maturity is in 2025 and the sum assured is ₹100,000.
I have availed car loan in the year 2017 and monthly EMI is ₹ 11,000 monthly EMI and a balance of ₹3,50,000 is to be paid. The monthly EMI for the two-wheeler loan is ₹7000 and this will be over in another 6 months. Monthly household expenditure comes to be ₹30,000/- and fuel charges are about ₹ 2500. This is my story in brief.
Kindly guide me in the better management of my finances. The investments are scattered and are less disciplined. I am planning to buy a flat worth ₹ 50 lakh within a year. I have talked to the bank. They are ready to give the home loan up to 80% of the property value at the rate of 6.9%. Kindly provide guidance on whether to cut off any of the above savings- liabilities or continue with all the above-mentioned money matters.
Gibin John, a certified financial planner replies:
You have made some investments from your income but a major part of the income is not saved or invested properly. Some amount is not utilized. Being disciplined in your personal financial management can solve your problems. Your total family income is ₹ 1,16,000. You are spending ₹ 32,500 for living expenses and ₹ 18,000 for loan repayment. After netting this income and expenses you will have a surplus amount of ₹ 65,500. Out of these surplus amounts, you are currently investing ₹ 24,700 into different schemes and a balance of ₹ 40,800 is not used for any purposes. If you manage the surplus amount efficiently, you can achieve all your goals.
Your investments are spread in different categories of products such as equity shares and mutual funds, gold, insurance, and NPS. These investments are either of long-term nature or the performance depends on the share market. Firstly, besides your investments, you should create an additional fund of ₹ 3 lakh for meeting the emergency situations. This amount can create by using ₹ 25,000 from the existing unutilized surplus amount. You may invest this amount in debt-oriented mutual funds and bank RD in a 50:50 proportion.
Your immediate goal is to buy a flat worth ₹ 50 lakh within a one-year. You have already contacted the bank and they are ready to give you 80% of the property value as a home loan. Your existing investments in equity shares and mutual funds can be used for this purpose. The value of these investments are ₹ 21 lakh and ₹ 4.5 lakh respectively. The value of the mutual fund is not mentioned in the letter. The last five years’ SIP return of ICICI Bluechip fund is around 14% and hence we assume that the current value of this investment would be ₹ 4.5 lakhs. You will require this amount immediately hence you may sell entire equity and mutual fund investments now, and keep the fund in bank FD or liquid mutual funds. This amount may be used for the down payment as and when required.
Currently, you have two other loans – a car loan of ₹ 3.5 and a two-wheeler loan. The interest rate for a car loan is higher compared to the home loan hence you can close the car loan of ₹3.5 lakh immediately by using mutual fund sales proceeds. If you do so, your loan with a higher interest rate will be closed but the amount you saved for a down payment will reduce and your home loan will increase. But it is fine. If you pay an amount of ₹ 20 lakh as a down payment your loan amount will be ₹ 30 lakh. The EMI for this loan will be around ₹ 30,000 for 15 years. When you get ₹ 5 lakh as money back from one of your insurance policies you can make an additional payment towards this home loan and it will help you to close the loan before the actual closure date.
You are investing ₹ 12,500 in NPS for your retirement purpose. Your current living expense is ₹ 30,000. To maintain the same standard of living even after retirement at the age of 55, you should create a corpus of ₹ 2.90 crores. For creating this amount during the working period of 22 years you should invest ₹ 32000 per month. Start investing an additional amount of ₹ 19,500 for your retirement corpus. The expected CAGR on this investment is 10%.
Currently, you have 4 insurance policies but you still don’t have sufficient coverage. Hence in the future when your liability and responsibility will increase you should take a term insurance policy of at least ₹ 1 cr. This is pure life insurance therefore the premium will be less compared to your existing policies. Also, ensure you have adequate health cover without which your savings will get depleted in emergencies.