Manikandan G, 35, is from Coimbatore and stays in a rented house with his homemaker wife and five-year-old child. He gets a monthly salary of Rs 73,000, and after considering household expenses, rent, EMIs and insurance premium, he is left with a surplus of Rs 18,187. Manikandan has a meagre portfolio, with no equity investmentand debt comprising only the EPF corpus. He has bought a house worth Rs 13.5 lakh, for which he has taken a loan and is paying an EMI of Rs 11,549. He also has a credit card debt of Rs 54,000, with an EMI of Rs 6,500. Manikandan’s goals include building an emergency corpus, saving for his child’s education and wedding, and creating a retirement kitty.
To start with, Chintan Vora of 5nance.com suggests Manikandan pay off the credit card debt of RS 54,000 with Rs 1 lakh cash. This will free up the EMI of Rs 6,500, which can be used to fund a goal. Next, he can set up his contingency corpus of Rs 2 lakh, which is equal to six months’ expenses, by allocating his remaining cash of Rs 46,000 and investing it in a short duration fund. For the balance amount, he can save his surplus Rs 24,687 for six months before investing for other goals.
How to invest for goals
Manikandan wants to save Rs 67.9 lakh for his child’s higher education in 13 years. He can do this by starting an SIP of Rs 20,000 in an equity fund for 12 years. For the child’s wedding, he has estimated a need of Rs 41.1 lakh in 23 years. He can build the corpus by running an SIP of Rs 6,000 in an equity fund for 10 years.
However, he will have to begin investing after three years due to lack of surplus. As for retirement in 21 years, at the age of 56, he will require a corpus of Rs 3.3 crore. He will have to assign his EPF corpus and maturity proceeds of the traditional insurance policy, which will yield nearly Rs 1 crore. For the remaining Rs 2.3 crore, he will have to start an SIP of Rs 5,000 a month in an equity fund, but will have to start investing after a year. This amount will alao have to be increased incrementally with a rise in income.
As for life insurance, Manikandan has a traditional plan of Rs 7 lakh, which is inadequate for him. Vora suggests he buy a Rs 1 crore term plan, at a cost of Rs 1,000 a month. He can also continue with the traditional plan as a debt component of his portfolio. Manikandan also doesn’t have any health insurance, and Vora advises him to buy a family floater plan of Rs 5 lakh. It will cost him Rs 1,000 as monthly premium.