Tag: financial planning

How a single woman can achieve retirement goals with ease

Personal Finance

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Meenakshi, aged 48, is single and wanted to ensure she retires when she turned 60. Her goals were limited. She had enough resources and cash flow from her point of view.

But she was a bit apprehensive on her financial condition towards satisfying her needs and wants. Her assets and cash-flow statement are listed below (see table).

At her age of 48, at first look this seems to be a reasonably sound net worth. The value of land parcels will only be known when she sells. Being single, she felt uncomfortable holding such land parcels. She felt that her relatives were expecting some ‘goodwill’ out of every sale of land. This increased the uncertainty factor in the net worth calculation. To please her relatives she felt she had an emotional binding to do what they expected.

Her expenses, at the time of planning, were ₹60,000 per month. On a relative scale, for a middle-class woman this definitely is above average. But she was not willing to compromise on her lifestyle. In addition to this, being an avid traveller, she would incur ₹2 lakh every year when her travel plans resume.

We analysed her risk profile, and the results showed her appetite in “balanced” category. She was able to appreciate long-term investing and the risks associated with that.

Review & recommendations

1. Emergency fund should to be maintained as fixed deposits for ₹7.2 lakh

2. Medical emergency fund to be maintained as liquid funds would be for ₹10 lakh. Being taxed only at redemption, these funds would help her in tax efficiency.

3. Her high priority goal was retirement at her age of 60. At current cost, her expenses in the first month of retirement would be ₹1,35,131 at 7 per cent inflation. She wanted to plan for her retirement corpus with a life expectancy of 90, post retirement inflation of 7 per cent, and expected return of 8 per cent.

4. To ensure adequate financial assets are in place to aid retirement life, salary income, provident fund accumulations (PPF and EPF) and previously held mutual fund investments were stringed together. This should provide her a corpus of ₹2,71,36,851. But her retirement corpus requirement would be ₹4,26,46,779. She was advised to invest ₹57,000 per month through systematic investments in equity mutual funds till her retirement age of 60.

5. She was advised to invest ₹10 lakh from cash in hand towards her “post retirement hobbies fund” in equity mutual funds.

6. If she continues her employment, she would be able to comfortably reach her goals of retirement, health and vacation needs by way of financial assets assuming she adopts the above-mentioned suggestions.

7. She was also advised to exit her real estate assets in a phased manner and accumulate in financial assets.

8. She will be using these sale proceeds partially to fund education needs of her relatives’ children and to other needy group over the next 10-12 years. This will help her manage her time post retirement. She was advised to establish a charitable or private trust to manage the activities if she plans it as a continuous activity.

9. She also wanted to contribute to the society in building social infrastructure at her hometown with her income in future. Ensuring adequate liquidity by way of optimum exposure to financial assets would help her to stabilise her post retirement life. She would be devoid of liquidity issues and emotional issues mentioned earlier. By consolidating her immovable assets, she would be in a position to provide for her nobler goals. This would in turn help her to spend time on such activities without having to carry the burden of liquidating immovable assets at short notices.

The writer, Founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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5 things investors should know, BFSI News, ET BFSI

Banking & Finance

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1. Banking and PSU debt funds are mutual fund schemes that invest debt and money market instruments issued by banks and PSUs and public financial institutions.

2. At least 80% of the corpus of the scheme needs to be in instruments issued by banks and PSUs, and PFIs.

3. All these entities are either backed, regulated or controlled by the government which reduces default risk and hence the scheme is supposed to have low credit risk.

4. Fund manager takes the call on whether to be in the short-term instruments or long-term debt instruments and hence the scheme carries interest rate risk.

5. These funds may give higher returns than Bank FDs of similar duration.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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5 things investors should know, BFSI News, ET BFSI

Banking & Finance

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1. Banking and PSU debt funds are mutual fund schemes that invest debt and money market instruments issued by banks and PSUs and public financial institutions.

2. At least 80% of the corpus of the scheme needs to be in instruments issued by banks and PSUs, and PFIs.

3. All these entities are either backed, regulated or controlled by the government which reduces default risk and hence the scheme is supposed to have low credit risk.

4. Fund manager takes the call on whether to be in the short-term instruments or long-term debt instruments and hence the scheme carries interest rate risk.

5. These funds may give higher returns than Bank FDs of similar duration.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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How a retired professional can provide for his family and also give back to society

Personal Finance

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Chandrasekar (65) retired three years back. He wanted to review his financial position because of his changed needs and new priorities. He was also considering transfer of wealth to the next generation.

He and his wife Rama (61) live in Chennai. As a finance professional, he has good understanding of various products and the risks associated with such products. As with many of us, the Covid-19 pandemic has spurred him to be sensitive to unforeseen challenges.

His assets comprised financial assets and real estate. His total net worth was estimated to be ₹15 crore excluding self-occupied house in Chennai. He is physically active and reasonably healthy. His wife is ageing and is on regular medication for a long-term ailment.

Defined financial goals

Basis his changed priorities of increasing liquidity, seeking regular income and wishing to bequeath assets to his son and daughter, we helped him define his financial goals as below:

1. Set up a emergency fund to cover 12 months of living expenses in fixed deposits

2. A medical fund for a sum of ₹50 lakh with enough liquidity through staggered fixed deposits and liquid funds

3. Automate his charity needs with an endowment fund of ₹1 crore. Income earned from this endowment fund will be spent on the education needs of deserving students and families. This was made possible with a trust structure.

4. He was advised to use different structures to transfer his wealth over a period and prepare a will accordingly.

5. Towards ensuring a regular income from his assets for the family expenses, we advised him to segregate his expenses into 2-3 buckets. First one to cover his living costs, which also included support staff and emergency care expenses. He estimated the amount to be ₹75,000 per month. Second was to spend for his luxury needs (travel and appliance purchases), estimated at ₹5 lakh per annum. Third one would cover social needs such as meeting and gifting friends and family. He estimated this to be at ₹3 lakh.

He preferred a conservative approach for his own needs and requirements but wanted to allocate reasonable growth assets for his other needs such as charity, and transfer of wealth to children. . For self, he favoured fixed deposits and safe investment avenues though he might be paying higher taxes, with safety and liquidity being top criteria for choosing an investment avenue.

Review and recommendations

1. We advised Chandrasekar to reserve ₹9 lakh in FDs with auto renewal option in the bank closest to his residence, towards his Emergency Fund.

2. To create a medical fund of ₹25 lakh each for him and his wife, again in FDs in a staggered way.

3. His retirement living expenses were at ₹75,000 per month. Estimated inflation would be around 7 per cent and life expectancy for him and his wife was taken as 100. Post tax return from investment products was estimated at 6.5 per cent per annum. Though he was aware of the burden of taxes and the impact on returns, he wanted to ensure he had enough funds to manage his expenses in the safest possible way.

He was advised to reserve ₹3.84 crore and the basket of products were selected from Government Bonds to annuity plans. The product basket ensured that it required minimal management from him or his spouse.

4. To cover his living expenses fund, we advised him to retain approximately 50 per cent of the corpus to wealth fund for his needs. This was invested in a balanced portfolio with 50 per cent in index funds and 50 per cent in fixed income securities.

5. He wanted to withdraw ₹8 lakh every year for the next 20 years and the corpus needed for the same was ₹1.6 crore.

Any income received from this corpus could be used as per inflationary additions towards his needs or he had the option of transferring the excess to charity.

6. Charitable trust was created with identified beneficiaries and the charity automated with minimal human intervention.

7. Recommended a combination of will and private trust and other alternate options to transfer wealth to his children in case of any unfortunate event. Enough care has been taken to protect his wife’s interest in managing her lifestyle and expenses for her life time.

The pandemic has induced fear in senior citizens about handling money, health needs and wealth transfer.

This gentleman, with hands-on experience in various financial products, opened many doors with much clarity.

Here was one who went the extra mile to ensure personal stability, and well-being of those around him. Also, seeking the help of professionals adds value to what you want to accomplish.

The writer, founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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How a techie couple with kids put their finances in order

Personal Finance

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Aakash and Rohini (aged 40 and 37), both employed in the IT industry, wanted to get their finances in order. They have two children: son Raghav (aged 9 and in class 4) and daughter Shreya (aged 3, in kindergarten).

They had listed their goals:

1. To earmark an emergency fund of ₹6,00,000.

2. To ensure all family members have more than adequate health cover.

3. To buy a 3BHK flat in the locality they reside in now. The estimated cost of the apartment was given as around ₹1.2crore. They were curious to find out if they could afford it. Else, they were willing to continue to live in a rented house if that made sense financially.

4. To set up a fund for college education expenses for both kids at ₹20 lakh. (Expected inflation of 8 per cent per annum).

5. To accumulate funds for kids’ marriage expenses at ₹20 lakh each and 400 grams of gold gift to each .

6. To provide a platform for comfortable retirement when Aakash turns 60, assuming current lifestyle expenses of ₹75,000 per month. They wanted to keep aside ₹1-1.5 lakh towards travel expenses every year. Before committing to any long-term liabilities (home EMI, for instance), they wanted to ensure committed savings towards some high-priority goals, especially those related to education.

Review and recommendations

Aakash and Rohini have displayed a disciplined savings habit over the last 6-8 years. Hence, a portion of their existing investments was mapped to education-related goals.

1. A sum of ₹6 lakh was reserved from fixed deposits towards emergency fund.

2. The target cost for Raghav’s college expenses will be ₹40 lakh when he turns 18 at an inflation of 8 per cent per annum. Mutual fund portfolio was rebalanced for ₹17 lakh in large-cap fund to meet this goal at an expected return of 10 per cent CAGR.

3. The target cost for Shreya’s college expenses will be ₹63.4 lakh, using the same assumptions of age and inflation. Mutual fund portfolio was rebalanced for ₹13.25lakh in large and mid-cap fund to meet this goal at an expected return of 11 per cent CAGR over 15 years.

4. Marriage expenses for Raghav (at 25 years of age) will be ₹59 lakh and for Shreya (at 23 years) will be ₹77.4 lakh, considering 7 per cent inflation per annum. Advised to invest ₹11,500 and ₹9,000 per month in mid-cap funds to meet these targets, assuming a 12 per cent rate of return.

5. Gold needed to be accumulated in combination of physical gold and Sovereign Gold Bond for both children every year. They were advised to accumulate gold assets of 10-15 grams in the initial years and increase the purchase over the years depending on the increase in income.

6. With their retirement falling due in the next 20 years, we advised them to map EPF and PPF at current values and further contributions towards retirement along with ₹15 lakh from Equity MF Portfolio. The expected corpus for the family’s retirement for a current monthly expense of ₹75,000 would be ₹9.25 crore. We assumed inflation at 7 per cent per annum prior to retirement (adjusted for life style increase).

Post retirement, inflation was assumed to be 5 per cent as they did not foresee much changes in their life style once they retired. They needed to invest ₹53,000 per month to reach the desired corpus. As their jobs were stable and provided upward revision in incomes regularly, it was advised to invest ₹20,000 initially. The couple can slowly increase this investment once they have repaid at least 50 per cent of the housing loan.

7. Post our detailed discussion, the revised cost to buy a house was estimated to be ₹1.4 crore. They were in a position to allot ₹40 lakh towards this goal, out of their existing investments (remaining FDs and MF investments). Balance ₹1 crore had to be funded with housing loan. EMI for this loan could vary from ₹80,600 to ₹96,000 per month with the interest rate in the range of 7.5 per cent per annum to 10 per cent per annum. As the rates are at the bottom of the curve currently, they were asked to be mentally ready for a hike in rates. It was advised to be ready for ₹96,000 EMI as this would help them to look at partial foreclosures as and when surplus funds were available.

8. If they continue to pay the housing loan EMI for the next 20 years assuming the interest rate in the range of 7.5-10 per cent per annum, the total interest outflow would be ₹93,34,000 to ₹1,31,61,000. The couple also agreed to call-off the decision, if they couldn’t freeze on a property in one year’s time. They will, instead, invest ₹80,500 per month for the next 20 years at an expected return for 10 per cent per annum to arrive at a corpus of ₹6.11 crore, which should help cover the inflation adjusted cost of the house after 20 years.

9. Aakash and Rohini were also advised to opt for pure term insurances covering their expected housing loan liability. It was suggested that the family opt for base cover for health insurance and a super top-up plan for a total sum insured of ₹25 lakh.

Covid has taught everyone that challenges could come at out of hide outs any time with amplified magnitude. Medical uncertainties, employment insecurities after the age of 45 and inflation surprises may pose major challenges to the above plan, going forward.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Planning for son’s education, own retirement

Personal Finance

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Nishant is 36 and works with an IT company in Pune. He has a 5-year-old son. Until now, he has focussed his energies on repaying the home loan, which he repaid completely 2 months back. Thus, he does not have many investments. In addition to this house, he has Rs ₹ 5 lakh in fixed deposits and ₹13 lakh in employees’ provident fund.

His net take-home monthly salary is ₹80,000. He can invest about ₹35,000 per month. Besides, his monthly contribution to EPF account, including employer contribution, is ₹11,500.

He wants to invest for his son’s higher education, for which he thinks he will need about ₹20 lakh (present cost) after 12 years. Besides, he wants to save for this retirement. He has not bought any insurance plan yet.

Buying insurance

Insurance is the first pillar of financial planning. In his case, getting insurance portfolio right is even more critical since he is the sole earning member in the family. There are three broad types of insurance plans that every earning member must buy: Life, Health and Accidental Disability Insurance.

While there are many ways to calculate life insurance cover requirement, a simple thumb rule is to buy a cover for 10-15 times the annual income. With his level of income, he can go for a life cover of ₹ 1.25-1.5 crore.

A term insurance plan is the best way to purchase a life insurance. This will cost him about ₹18,000-20,000 per annum. He can choose to pay annual premium in monthly installments too.

He has a health cover of ₹3 lakh from his employer. The coverage is clearly not sufficient for a family of three. He must buy a family floater health insurance plan of ₹10 lakh. That will cost him about ₹15,000 per annum.

He can buy accidental disability cover as a rider with a term plan or as a standalone plan. A rider with the term plan is cheaper because the scope of coverage is limited to total and permanent disability.

A standalone plan is more expensive, but it covers both partial and total permanent disability, temporary disability, and accidental death.

These insurance plans (life, health and accidental cover) will cost about ₹5,000 per month or Rs 60,000 per annum.

He has a fixed deposit of ₹5 lakh that can be considered towards medical and emergency fund.

Son’s education

For son’s education, he needs ₹20 lakh (present cost) in 12 years. At the inflation rate of 6 per cent per annum, the target nominal corpus will be ₹40 lakh in 12 years.

Assuming a return of 10 per cent on the portfolio over 12 years, he needs to invest ₹15,000 per month.

He can put this money into a hybrid fund or a multicap fund by way of SIP. He must gradually shift this money to debt as he moves closer to the goal.

For his retirement, he mentions that only 2/3rd of his current expenses will continue into retirement.

His current expense is ₹45,000 per month but that includes conveyance and school and tuition fee for his son.

His expected expenses during retirement will be ~ ₹30,000 per month (cost). Assuming a post retirement life of 30 years, inflation of 6 per cent per annum and that he can earn inflation matching returns during retirement, he needs to accumulate ₹4.3 crore in 24 years.

His current EPF corpus will grow to ₹80 lakh in 24 years . At assumed pre-retirement return of 10 per cent per annum, he needs to invest ₹32,000 per month.

He is already putting ₹11,500 per month by way of EPF. After accounting for regular expenses, insurance payments and investment for son’s education, he can invest an additional ₹15,000 per month (35,000 – 5,000 – 15,000).

His retirement portfolio is already debt heavy. He can split this amount between a largecap fund and a midcap fund, with heavier allocation to the former. He is investing less than he should. He must invest more when his cashflows permit. This should not be a problem since his best earning years are ahead of him.

He must understand all the goal calculations above are based on heavy assumptions about inflation and expected returns.

He must keep revisiting these assumptions and portfolio growth and make adjustments accordingly.

The writer is a SEBI-registered investment advisor and founder of personal financeplan.in

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How a middle-aged couple can meet short and long-term goals

Personal Finance

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Sankar and his wife Aparna wanted to plan for their goals. Sankar is 43, Aparna 40.

Both were interested in long-term saving and investing. Past returns of the market, coupled with lower interest rates on fixed deposits, kindled their interest in equity related investments. Though they appeared keen to invest in equity oriented products, they lacked exposure to market volatility.

We analysed their risk profile and observed that they had a disciplined savings culture. They had exposure to products such as Public Provident Fund, Unit linked insurance plans and mutual funds. But, there was a lack of purpose in their choices.

They were tuned to looking at product features and popular choices. We advised them to think in terms of their own goals and time horizon, for each goal. The benefits of staying invested across market cycles was highlighted with data. They were enthused to put this concept into practice. They were also encouraged to think in terms of the time available for a goal — which helped them to avoid a few products and add new baskets!

We suggested that they invest not more than 50 per cent of their yearly savings in equity in the first three years. to be reviewed at the end of this period. We suggested four baskets of investments for them.

Emergency kitty

Both Sankar and Aparna are employed. Their expenses were found to be relatively low compared to others with similar income. They had more fixed income investments with some flexibility to rely upon. Hence, we advised them to reserve three months’ of expenses in fixed deposits.

Short-term – 1-2 years

They anticipated some planned expenses related to travel and gifts. They also wanted to change their car within the next two years. The total amount needed for this was found to be ₹5 lakh.

We advised them to invest in liquid funds and FDs, and to save around ₹25,000 per month towards this goal.

Medium-term – 3-6 years

The couple’s son’s college education, a family function and house construction were all falling due in that time period. They already had some savings but these were not enough. This had to be funded by way of regular investments. The goal target was around ₹15 lakh.

We suggested that they invest in a combination of debt MFs, asset allocation funds and large-cap MFs towards this basket. They needed to invest ₹24,000 per month. Expected return would be around 8 per cent CAGR and the withdrawal may happen after four years, in tranches.

Long-term basket

Though they were saving towards their retirement in Provident Fund and other fixed income products, it was recommended that they add equity MFs. They were advised to invest ₹50,000 per month in large and mid-cap equity MFs for 10 per cent post tax returns over a period of 10 years. This will help them reach a ₹1-crore corpus.

It is important to map your savings and investments to consumption needs or wealth needs. It is ‘beginning with the end in mind’ that matters a lot.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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How to retire early without spoiling family’s dreams

Personal Finance

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Raghavan, aged 49, and Saraswathi, aged 42, wanted to draft their retirement readiness plan. Raghavan, after a busy corporate life, felt it was time to quit and spend time with family. His daughter Anu (18) had just joined college and son Venkat (16) was in ninth standard.

The accompanying table (Assets) shows his net worth.

His investment assets are ₹5.53 crore. Also, he holds 75 sovereigns of physical gold. Raghavan has been a balanced risk taker over the years. He understands the volatility of equity investments and stayed put over the years to generate reasonable returns from his investment portfolio. He has now exited all his direct equity investments and stuck to mutual funds over the years. He has a sound investment portfolio built over the years, with regular investing.

Family history suggested that the life expectancy number for him and his wife would be 100 years. His family has maintained a modest lifestyle with monthly expense of ₹45,000 per month excluding children’s education expenses.

Goals

Firstly, he needs to maintain one-year expenses as emergency fund in fixed deposits.

Secondly, Anu needs ₹6 lakh towards her college education for the next two years, which is to be maintained as fixed deposits/liquid funds. Also, Anu’s PG needs funding.

Anu’s marriage expenses are estimated to be ₹35 lakh. Anu’s gold gift needs will be met from Raghvan’s current holding of physical gold.

Similar planning for Venkat is also required.

The family needs ₹2.7 crore to manage expenses of ₹50,000 per month for a period of 58 years, till Saraswathi attains 100 years of age.Expected return assumed to be at 8 per cent CAGR.

We suggested they add ₹5,000 per month towards any medical need as additional retirement fund. This may be needed to support any prescription costs, medical helper costs over the years.

It was also suggested that Raghavan keep some corpus towards his property maintenance. His independent house may need reconstruction/renovation as the years pass by.

All his goals are seen in the accompanying table.

Final thoughts

Raghavan is very well positioned to opt for immediate retirement with his modest lifestyle. With the current allocation of 49:51 in equity:debt, he can fund most of his goals without any compromise.

We arrived at a total cost of all his goals to be Rs 6.52 crore. His financial assets are worth Rs 5.53 crore. With long-term equity exposure to goals such as retirement health fund, post retirement vacation fund and property maintenance fund, this corpus is sufficient for him to retire immediately.

Mathematically, for a financial planner, saying ‘yes’ to retirement-ready status to a client is easier.

But there are other behavioural aspects to a peaceful and comfortable retirement. Having worked for more than 25 years with dedication, he was prudent and disciplined while saving for retirement. But he never really bothered to spend time with family or enjoy vacations which have become more important for him now.

This is likely to increase spending in the initial years of his retired life. So, it was advised to look out for regular earning opportunity.

This is basically to protect oneself against unexpected change in financial assumptions such as interest rate, inflation and other surprises such as health needs and lifestyle expenses.

When it comes to retirement readiness, it is always better to exceed the planned corpus by substituting with regular income or allocating additional corpus called ‘retirement fall back fund’.

Hence it was advised that Raghvan take logically sound decisions on spending in the first five years post retirement.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Muthoot FinCorp rolls out Aatmanirbhar Mahila Gold Loan scheme for women

Banking & Finance

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Muthoot FinCorp has launched Aatmanirbhar Mahila Gold Loan – a unique and exclusive gold loan scheme for women. This is an extension of Muthoot FinCorp’s #RestartIndia Mission.

The AtmaNirbhar Mahila Gold Loan scheme was launched by actor Vidya Balan and the product offers maximum Loan to Gold value and lowest interest rate. This scheme is aimed at and is expected to be helpful to a large number of women who are currently dependent on local money lenders for their financial needs.

Muthoot FinCorp Shopping Dhamaka gets overwhelming response

Muthoot FinCorp employs more than 9,000 women staff across its 3,600+ branches all over the country. Women Muthootians, hence, felt the need to come out with a special scheme for the women of the country to make them self-reliant as they understood the problems of women better. The company has been able to positively transform more than 64 lakh women customers and every customer had a transformation story to share, a press release said.

ICRA upgrades long-term debt rating of Muthoot Finance to AA+

Vidya Balan said, “Empowering women has become the fundamental aim for all of us in not only helping them achieve their dreams but also transform and boost their entrepreneurial spirit. Women not only take on the responsibility of the house but also play a larger role in the economy and society. I am grateful to be supporting Muthoot Fincorp who has been a trailblazer in accelerating the financial inclusion of women that will positively impact the future”.

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Financial planning for a family of 4

Personal Finance

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Sankaran (42) and his wife Revathi (39), parents of 2 children, work in the IT industry. They want a financial plan to achieve their goals in future. They had prioritised their key goals as follows.

1. Education fund for kids, aged 9 and 4.

2. House at the earliest, preferably a 3-BHK in Chennai at a cost of ₹1.2 crore

3. Investing for retirement

4. New car at an additional cost of ₹8 lakh in 2022

5. Protection of family from unfortunate events

The family’s cash flow and assets are as follows:

 

All the investments in real estate were made based on third party compulsion in the last 4 to 5 years. They had not seen their assets appreciate considerably. They had sought unit-linked insurance policies on the assumption that they were investing in mutual funds. They had started to invest in mutual funds two to three years ago. With home loan interest rates at attractive levels and surplus cash available in hand, the couple wanted to buy a house.

Sankaran did not exhibit confidence of getting any substantial increase in his salary in the coming years. Revathi was comfortable continuing with her employment.

 

We reviewed their investments and recommended the following.

a) Build up ₹ 6 lakh towards an emergency fund

b) Set up protection by buying term insurance for Sankaran for a sum assured of ₹1 crore and Revathi for ₹1 crore without riders.

c) Buying health insurance for the family for a sum insured of ₹10 lakh. Though the family is covered for medical emergencies through employer-provided group insurance, these covers had many restrictions along with low sum insured. The health cover was also insufficient considering their life style

d) Keep track of spending for the next one year to ascertain their actual monthly expenses. The expenses may have come down because of the Covid lockdown and that they could go back to their old spending habits once life returned to normal.

e) Restructure their holdings in unit-linked insurance plans within the next one year, mainly to reduce the annual commitment. This would reduce the premium commitments from ₹ 6 lakh per annum to ₹1 lakh per annum

f) Sell two of their plots of land to partially fund the house purchase, so that their leverage could be restricted and an unproductive asset monetised. This would help them to buy a house for ₹1.2 crore while also restricting the loan component to ₹60-70 lakh.

With adequate contingency measures in place, reduced premium commitments and surplus available as cash, they were better placed to service the housing loan without additional financial burden. They were also advised to reduce expenses wherever possible to foreclose the loan in the next 8 to 10 years.

Education goal

Towards elder son’s education, they would require about ₹35 lakh in the next nine years. They would also require ₹57 lakh for the younger son’s education. (Current cost for education is presumed at ₹15 lakh with inflation assumed at 10 per cent).

At 11 per cent expected return, they would need to invest ₹14,000 and ₹16,000 per month in large-cap mutual funds to fund these two education goals.

Retirement goal

We recommended that they invest ₹25,000 in large-cap mutual funds towards their retirement corpus. With an expected return of 11 per cent over the next 20 years, they would be able to achieve a corpus of ₹2.16 crore. Along with regular PF and NPS accumulations that they were making, they should be able to reach a sizeable corpus towards retirement.

Other facets

To become successful investors, we encouraged them to keep an ‘Investing Behaviour Journal’ to keep a record of their emotions as and when there were wild swings in the markets either up or down.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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