I am 35. Currently, I am holding four insurance policies. I also contribute Rs 2,000 towards my Public Provident Fund account monthly (current balance is Rs 80,000). I also invested about Rs 15,000 in mutual funds via systematic investment plan (SIP) in eight funds. My goal is to have Rs 50 lakh for my child’s education in 10 years, Rs 50 lakh for my child’s marriage in 20 years and Rs 1 crore for retirement in 25 years. For policies, I am paying more than Rs 50,000 annually, which I feel is very expensive. I plan to close all of them. How can I achieve my goals?
First, your decision for making your endowment policies paid-up and switching to cheaper-term insurance for cover is right. The additional savings accumulated as a result of closing down these policies can be invested in diversified mutual funds through the SIP route.
For this, you don’t have to start any fresh SIPs in additional funds. Instead of investing in many funds, select and invest in around five good funds. One of these funds can be a monthly income plan (MIP) to give your portfolio a clear debt exposure. With interest rates peaking, this investment may give you a decent return in future.
My husband (42) and I (36) earn a net salary of Rs 60,000 a month. We have a concessional housing loan from our employer paying around Rs 5,000 monthly. The remaining loan period is 10 years. We get a rent of Rs 11,000 on this property.
I earn an agricultural income of Rs 1,00,000 a year. For the past one year, we have been investing via SIPs income equity-diversified funds. The amount invested so far is Rs 4.5 lakh, and the monthly SIPs amount to Rs 28,000. Our PPF balance is Rs 7,00,000 and EPF is Rs 15 lakh. We have a fixed deposit of Rs 5,00,000 maturing in November 2011.
Our goals:
a) Buying a car in next two years costing Rs 7-10 lakh through a loan of Rs 5,00,000
b) Buying another house worth Rs 50-75 lakh in three-four years, partly on loan
c) Saving for our 13 year old son's higher education, that is, approximately Rs 30 lakh.
Help us rejig our portfolio.
Your current portfolio is currently debt-heavy. This is not helping your net worth to grow at the desired speed.
Month to month you are doing a good job by investing a substantial amount of your earnings into equity mutual funds.
However, the moment you opt for a loan for your second home and for the car, your future potential to invest in funds will grossly decrease. This may happen in the next two to four years. The cost of the child’s higher education (in the next seven years) will also have a negative impact on your wealth building process.
So your immediate concern would be to get into a 50:50 debt to equity portfolio balance for faster growth. Also your plan of buying the second house needs to go through due diligence.
The writer is a certified financial planner
