I am a 27-year-old single man, working in a private company. I have been investing in mutual funds (MFs), stocks and fixed deposits (FDs) for the past two-three years. My monthly income is Rs 38,000 and expenses are approximately Rs 15,000. I have Rs 1.85 lakh in my bank account. My other investments include equity stocks: Rs 1.85 lakh (current market value); tax-saving FDs: Rs 82,000; pension plan: Rs 24,000 a year (started in 2009); equity-linked savings scheme (ELSS): Rs 2.04 lakh and equity-diversified MFs: Rs 1.35 lakh. My goals are purchasing a car worth Rs 5-6 lakh (after two years), a house for Rs 10 lakh (after 10 years) and building a retirement corpus of Rs 1.3 crore (over 25 years). At present, I invest Rs 3,000 monthly via the systematic investment plan (SIP) route. I plan to increase the amount to Rs 9,000. With increased investment in MFs, will I be able to achieve my goals of purchasing the car and house?
We appreciate that you have identified your financial goals and want to start working towards achieving these. First, it is important for you to plan for a contingency. You can maintain a balance sufficient to cover six months of basic expenses in your account.
Buying the house must be your top priority, as it will build an asset for you. The cost of the house after 10 years will be approximately Rs 18 lakh, considering six per cent annual inflation. The monthly contribution of Rs 9,000 towards the goal must be invested in equity-diversified and debt funds in the ratio of 80:20. We have aligned your existing investments — equity stocks, equity MFs and ELSS — with your retirement goal. At present, your investment in these instruments amounts to Rs 5.24 lakh. At the time of retirement, it will be a crore, if invested in equity-diversified MFs and debt funds in the ratio of 80:20. You will need a corpus of Rs 1.3 crore at the end of 25 years. In order to meet the shortfall, you need to invest Rs 1,500 monthly, possibly via SIP.
In order to achieve your goal of purchasing a car, you can utilise your FD of Rs 82,000. Assuming the price of the car at Rs 5 lakh, you can start saving about Rs 17,500 every month over the next two years to accumulate the amount. You can invest the money in an equity:debt ratio of 20:80. You can invest through monthly SIPs or can avail a car loan to fund the balance amount.
I will retire in five years. My annual income is Rs 23 lakh. I own two flats, valued at Rs 25 lakh in Delhi and Chandigarh each. The Chandigarh flat earns a monthly rent of Rs 9,000. My other investments are: Rs 20 lakh in fixed deposits (FDs), Rs 2 lakh (balance) in the Public Provident Fund (PPF), lumpsum Rs 18 lakh in monthly income plans (MIPs) of mutual funds (MFs), and two unit-linked insurance policies (Ulips) with Rs 3 lakh in each. I also invest Rs 30,000 monthly for my daughters’ education and will continue for next two years. I invest Rs 20,000 via systematic investment plan (SIP). My expenses amount to Rs 50,000 monthly. My goals are to create a retirement corpus and fund my daughters’ marriages in two-four years. I would need around Rs 40 lakh. I have an investible surplus of Rs 4 lakh. How should I invest these funds? Also, is my portfolio balanced enough? What changes would you advise to meet my goals?
You will need a retirement corpus of Rs 1.46 crore (assuming an annual inflation rate of six per cent). You must allocate your PPF, Employee Provident Fund and MIP investments towards this corpus. However, the data you have given is insufficient. We cannot say whether the corpus generated by these investments will be enough to meet your goals. We would recommend you to get out of MIP and choose a more aggressive fund.
You can allocate present FDs worth Rs 23 lakh for your daughters’ marriage. We assume that the FDs would generate post-tax yields of approximately six per cent. Their maturity amount after three years will be Rs 27.39 lakh. Allocate Ulips, monthly SIPs and the investible surplus of Rs 4 lakh towards this goal. Invest the surplus on a progressive asset allocation basis. Funds should be in a moderate-conservative portfolio with debt-equity ratio of 80:20. Such a portfolio will yield 8.4 per cent return annually.
The writer is the founder & CEO, Ffreedom Financial Planners. Views expressed are his own. Send your queries to yourmoney@bsmail.in
