My 4th Financial Plan For ET Wealth

Family finances: Simple goals, disciplined investing to ease journey

A cursory look at the Godboles’ portfolio is unlikely to enthuse any financial planner. A dismal net worth of Rs 84,000, a moderate income, poor investments, and no life or health insurance.
The obvious lack of financial planning for this couple in their early 30s would be alarming if it weren’t for two facts. One, the Godboles have a realistic set of goals, which is aligned to their financial reality. These include buying a car, funding their daughter’s education and marriage and planning for their retirement.

Two, they don’t need to save for a house even though they don’t own one yet because they are expecting to inherit ancestral property. “Hence, my real estate requirements will be taken care of. I would like to focus on building a future for my daughter,” says 32-year-old Amar. The Godboles can do this, along with achieving their other goals, if they set about implementing the plan laid out by Shiv Kukreja of Ojas Capital.
Amar lives with his wife Swapnaja, also 32, and 10-month-old daughter, Swara, at Lonavala, Mumbai. Amar, who is employed in the hospitality sector, takes home a monthly salary of Rs 36,000, while Swapnaja is a homemaker.
Though their asset allocation pie chart looks good, the portfolio is worth only Rs 84,000, of which 34.5% is invested in equity, while debt investments comprise nearly 48%. The cash component seems very high as a percentage (18%), but the actual figure is just Rs 15,000. The cash outflow includes Rs 12,000 on household expenses and Rs 1,000 as house rent. This leaves the couple with a surplus of Rs 23,000, which needs to be invested to achieve the goals. However, before they do so, the family must insure itself adequately.
While the couple has shown willingness to enter the markets by investing in equity, the duo has been caught completely off guard on the insurance front. So, to begin with, they must buy adequate insurance and set up a contingency fund.
Currently, Amar does not have any life cover, which is a bad financial move since the Godboles do not have substantial assets to fall back on in case of an eventuality and Amar is the only earning member. So, Kukreja suggests Amar purchase a term plan of Rs 75 lakh for himself immediately, and this will cost him Rs 840 every month.

Even on the health insurance front, the Godboles have not done too well. Hence, Amar must buy a family floater plan worth Rs 4 lakh, which will cost him Rs 688 a month.
As for the contingency fund, which should be equivalent to three months’ expenses, the Godboles need to have a corpus of nearly Rs 45,000.
Currently, they have Rs 15,000 in their bank account, which can be kept aside for emergencies. However, this amount will have to be enhanced by saving the surplus for the next month and a half.

This will help them build the required corpus. Once this is done, the Godboles can proceed towards planning for their other goals. To begin with, the family wants to buy a car worth Rs 4 lakh after six months.

To arrange for the down payment of Rs 1 lakh, the couple can allocate the equity worth Rs 29,000 towards this goal. To build the balance corpus, they will have to start investing a surplus of Rs 21,000 for four months in an ultra short-term debt fund.
This will help them amass Rs 1.13 lakh in the required time.
They can then take a loan of about Rs 3 lakh for five years, which will result in an EMI of Rs 6,463 per month. The Godboles can now plan for the longterm goals, of which they first want to build a corpus of Rs 91 lakh in 19 years for Swara’s education.
For this, they can start investing Rs 13,000 every month in equity mutual funds, starting September this year.
Assuming a growth rate of 12% every year, the investment is likely to grow to Rs 72 lakh in 16 years, after which it must be invested in a fixed deposit or short-term debt fund to shield it from volatility.

This investment is likely to grow to Rs 91 lakh, assuming a growth rate of 9% every year. To meet their daughter’s marriage expenses, the Godboles will need to build a corpus of Rs 30 lakh. As this goal is 25 years away, they need to start an SIP of just Rs 1,900 in equity mutual funds. Assuming a growth rate of 12% every year, the investment is likely to grow to Rs 24 lakh in 22 years. Thereafter, the Godboles will have to reinvest the corpus in a fixed deposit or debt mutual fund, and it will grow to Rs 30 lakh, assuming a growth rate of 9% annually.

Finally, the Godboles need to plan for their retirement, for which they will need a corpus of Rs 3 crore after 31 years. Since this goal is not a priority, the Godboles can start investing for it after five years. They will have to start a monthly SIP of Rs 26,500 in equity mutual funds, which will grow to Rs 2.5 crore in 26 years. This corpus should then be reinvested in a fixed deposit for three years, which will grow to Rs 3.3 crore, the amount needed for retirement.

Financial plan by Shiv Kukreja, Founder & Managing Partner, Ojas Capital

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