Your Financial Plan

I am 32 and my wife is 30. For the past three years I have been investing through the systematic route (SIP) in mutual funds (current value is ₹6 lakh).

My immediate goal is to buy an apartment worth ₹90 lakh with a loan of ₹30 lakh.

My goals are to accumulate a retirement corpus of ₹15 crore and to save for our children’s education and marriage (we don’t have children as yet). I need ₹8 crore by 2035.

Both my parents passed away due to illness before they turned 55.

 - Puneet

Financial planning should be reasonable and achievable. Your monthly household expense of ₹20,000 may increase later on, once the children come along and due to inflation.

The present monthly expenses will be ₹1.45 lakh after 26 years at 7 per cent inflation. To receive such an income at retirement, you should have a corpus of ₹3.45 crore.

It should earn 1 per cent over and above inflation to sustain till you turn 80.

So, your need for ₹15 crore as retirement corpus appears way off the mark.

To reach the retirement target of ₹3.45 crore you need not save separately.

If your monthly EPF contribution of ₹8,000 and your employer’s contribution of ₹7,549 increase at 5 per cent every year, at retirement, your corpus will be ₹3.15 crore. EPF interest rate is assumed to remain at 8.5 per cent.

We have not factored your wife’s contribution for this goal. If she continues to work till her retirement, she will have a corpus of ₹2.6 crore.

Children’s education : It is too early to plan for children’s education and marriage. But if you continue to save systematically as practised now in PPF, mutual funds and direct equity, and if the combination delivers returns in the range of 8.5-15 per cent, your corpus after 20 years will be ₹13.5 crore which will meet your needs and more.

If the portfolio fails to meet the desired returns, your insurance maturity proceeds of ₹60.8 lakh (factoring in bonuses) will come handy to meet the shortfall.

Insurance : Considering your family’s health record you will need term insurance. Going by your aspirations and liabilities, buy a term cover online for a sum of ₹2 crore. Also take a medical policy. Buy a basic cover for ₹5 lakh and a super top-up plan for another ₹5 lakh. With a top-up plan you are entitled to higher cover at a lower premium.

Asset allocation : You have managed to build a reasonably good corpus.

But it may not be prudent to trade in equity with a return target of 15 per cent every year. Considering your current age we suggest you build an equity portfolio for the long term and book profits at least when the equity markets turn hot to protect your corpus from eroding in value.

-Suresh Parthasarathy

(The writer is an investment advisor and founder myassetsconsolidation.com. Send your queries to fp@thehindu.co.in)

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