I am 37 and my salary is Rs 1.25 lakh. I also get a variable compensation of Rs 4-8 lakh a year. We live with my parents, who are independent. Our child is six and we are expecting a second child shortly. Our monthly expenses are likely to increase to Rs 25,000. I bought a plot for which I need to pay Rs 20 lakh in three years.
Do I need to increase my life and health cover? I am planning to construct a house by withdrawing Rs 30 lakh from my PF account and by taking a home loan for Rs 10 lakh. Is it a good idea? I would need Rs 65 lakh in today’s terms for each of my children’s higher education. How much should I invest every month from 2015? I expect to retire at 50. Our life expectancy is 80 years. If the goals are not met before 50, I can work in a stress-free job. Currently, after compulsory contribution, I save Rs 11,000 through VPF for retirement. My risk appetite is above average. Please suggest suitable investments for all goals.— Shriram
With regards to your plot, you should approach your home loan lender and ask for a single loan for construction as well as for the land. Financial institutions allow such an arrangement . If they accept it, you will be entitled to tax benefits for the loan. This will reduce your borrowing cost substantially.
Similarly, for the other plot withdraw from your PF to pay the cost.
Education: To meet the goal over the next 12-17 years, you need to save Rs 43,000 a month. Also, your current lump sum investment of Rs 25 lakh in mutual funds should deliver 12 per cent return. This savings is for a corpus of Rs 1.46 crore and Rs 2 crore needed over the above mentioned time frame.
Retirement: When you turn 50, monthly expenses of Rs 20,000 will be Rs 48,200, considering an inflation of 7 per cent. To have such a monthly income at 50 you should have a corpus of Rs 1.49 crore. This corpus should earn inflation-adjusted return of 1 per cent to sustain till 80. If you withdraw Rs 50 lakh from PF and PPF and use it for your construction and to settle your dues for the second plot, your balance in PF and PPF will be Rs 45 lakh. At 8.5 per cent along with your monthly EPF and VPF contribution, at 50 this corpus will be Rs 2.56 crore .
Investment strategy: If you borrow Rs 10 lakh for 10 years, you may end up paying an EMI of Rs 13,500 at an interest of 10.5 per cent. Then your surplus will come down to Rs 20,000.Invest the surplus in equity-oriented mutual-fund schemes. Exit HSBC Equity, DSPBR Tiger, Kotak Opportunities, Sundaram Select Focus and Magnum Contra.
Insurance: Buy a term cover for Rs 1.8 crore. Take a top-up medical policy for Rs 5 lakh.