Ramasubbu, aged 36 and Sweta, 33, are from Pune and want to plan their finances.

Ramasubbu is a professor in a reputed university in Pune and Sweta is a doctor, working in a corporate hospital there.

They have listed their goals as below

1.      Buy a house in Pune in the next couple of years; they want to check the affordability

2.      Build a corpus towards their son’s education in the US for UG and PG; their son is now four years old s

3.      Peaceful retirement when Ramasubbu turns 60

Their risk assessment suggested that both have a moderate risk profile. They look for stability rather than higher return/volatility in their portfolio.

Review and recommendations

1.      Their high-priority goal is to buy a house in Pune. Estimated current cost is ₹85 lakh. As they want to buy the house in the next two years, they need to plan for a cost of ₹1 crore approximately, considering 8 per cent growth rate in apartment prices in the locality they want to buy in. They need to stick to this limit so as to comfortably reach other important goals.

a.      Mapped ₹20 lakh from FD towards this goal. FD to be retained for next two years at current rate of 7 per cent pretax. They will be able to accumulate ₹ 30.7 lakh post tax if they invest ₹35,000 per month in RD or similar instruments for the next two years.

b.      Balance amount of ₹70 lakh could be funded through housing loan. If they opt for housing loan at 8.5 to 9 per cent per annum for a tenure of 20 years, EMI would be in the range of ₹60,000-63,000. EMI may increase by ₹9,000-10,000 if they increase the loan amount by ₹10 lakh.

c.      EMI of ₹60,000-63,000 would be affordable for them at current earnings. Any substantial income increase can help them to reduce housing loan amount in two years or later to close the housing loan early.

d.      They need to plan for ₹1.5 crore current cost of UG in US at an inflation rate of 7.5 per cent, covering rupee depreciation. Along with mapping ₹15 lakh from FD and ₹4.5 lakh from MF Equity portfolio, they should invest ₹40,000 per month towards this goal. With 40 per cent allocation to equity, they can expect ₹1.8-2 crore corpus in the next 13 years. This amount would be approximately 50 per cent of the cost planned. They may opt for education loan to fund the deficit. In addition, they need to increase their savings over the next 13 years systematically to reduce the education loan.

      Ramasubbu was advised to contribute ₹10,000 per month through VPF. Current savings in EPF, NPS and ULIP along with further contributions at same level will fetch them ₹85 lakh at the time of his retirement. To maintain the current lifestyle at ₹50,000 per month, they are required to build a corpus of ₹7.7-9.3 crore at an expected inflation of 6-7 per cent per annum in the next 24 years. They were advised to invest ₹30,000 per month towards retirement in a moderate portfolio. This would fetch them retirement corpus of ₹3-3.6 crore. Life expectancy planned — age 90 for both of them.

3.      They must increase the retirement savings once the education goal financing gets completed, to fund the deficit towards retirement.

4.      Balance ₹10 lakh in fixed deposit was advised to be maintained as emergency fund and medical corpus.

5.      They were also advised for right amount of life insurance through term insurance and suitable family floater health insurance.

Choosing the right products, managing suitable asset allocation for their risk profile, regular review of investments along with the change in their risk profile over the years are key for Ramasubbu and Sweta to reach their goals. There could be changes in the investment products, taxation, and other economic variables. Starting the investment journey with the right attitude and managing the investments through multiple economic cycles calls for the right guide to help them manoeuvre the challenges. If they focus on increasing their income and continue to invest through ups and downs of the market maintaining suitable asset allocation, these goals can be met comfortably.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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