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Don't mix investments and obligations

Suresh Parthasarathy

I am a 44-year-old working in a private company. My parents (above 70), wife (40), and daughter (8) are my dependants. My monthly take-home salary is Rs 55,000. My household expenses is Rs 25,000 and I pay Rs 10,000 as EMI towards my home loan. The loan is till 2018. My monthly surplus is Rs 20,000.

I have invested Rs 25,000 in NSC, Rs 2.1 lakh in PPF and Rs 3 lakh in post office monthly income scheme. For emergency I have a fixed deposit for Rs 2 lakh. My PF accumulation is Rs 4 lakh and monthly contribution is Rs 3,240. I have gold coins weighing 40 grams. My MF investment is Rs 3.4 lakh and direct equity exposure is Rs 2.1 lakh. I hold a plot that is valued at Rs 6 lakh. My accumulation for company superannuation benefit is Rs 2 lakh.

I took term insurance plan with add-on accident policy for Rs 15 lakh and the annual premium outgo is Rs 10,000. I have three ULIPs and the sum assured is Rs 3.5 lakh. I have endowment insurance in my wife's name for Rs 2.5 lakh. Most of my policies are maturing around 2020. The annual premium outgo is Rs 40,000. My family members are covered under group health insurance for Rs 3 lakh. For my parents I have additional cover for Rs 1 lakh.

I want to save for my daughter's higher education (Rs 10 lakh) and marriage (Rs 10 lakh) when she is 25. Are the sums reasonable considering inflation? I also wish to accumulate Rs 1 crore before retirement. Based on my family health record, I life expectancy is 80.

How much should I invest and in what investment options to reach my goals? I am planning to purchase 200 gm of gold as an investment over five years for my daughter's marriage. Is gold ETF a better option?

— Sanjay


It is not uncommon for individuals to buy insurance due to pressure from a friend-cum-agent though the policy may not fulfil needs. But it's important to understand that insurance is a long-term contract and should be evaluated carefully.

For instance, in your ULIP portfolio, you have opted for a lower risk cover when the risk premium in ULIPs is more competitive than term insurance.

Similarly, emergency funds are a must when aged parents are around. It is vital to deploy the interest from emergency funds in high yielding financial products.

Going by the fee structure for engineering courses, Rs 10-11 lakh should be sufficient provided your daughter gets admission through merit. Else you will have to set aside a couple of lakhs more.

Earmark the post office monthly income scheme (POMIS) and two regular ULIPs for education and it can take care of the goal, provided you redeploy the maturity proceed of POMIS in an investment that yields a post-tax return of 9 per cent. Bank FDs can be used to meet any shortfall.

I think your estimation of Rs 10 lakh for marriage, excluding the gold, in 2027 appears too conservative based on inflation. Assuming that you budget Rs 15 lakh as expenses, you ought to save Rs 2,400 a month for 204 months and it should earn post-tax return of 12 per cent.

It may not be prudent to take the monthly expenses to arrive at your future requirements. After retirement, monthly expenses would be for you and spouse.

Assuming that after retirement 70 per cent of the current monthly expenses are sufficient, Rs 18,000 monthly (Rs 2.16 lakh per annum) of present value would be Rs 5.56 lakh per annum at retirement. For this sum you should have a corpus of Rs 1.2 crore and it should be earn two percentage points above inflation. Considering that PF accumulation and basic pay is growing at 5 per cent per annum, your accumulation in PF during retirement would be Rs 41 lakh. If you deploy the maturity proceeds of PPF and investments in equity exposure and earn 12 per cent return on them, your shortfall towards retirement would be Rs 50 lakh. To meet the shortfall you need to invest Rs 11,600 a month till retirement and the investment should earn 12 per cent.

If your standard of living is increasing over the years, retirement corpus will go into deficit.

Your superannuation pension will help you to meet the shortfall. You can sell the plot to meet a shortfall. Your wife's traditional insurance policy can be redeployed towards retirement purpose.

Accumulating gold through ETFs may be the best option. Even if you accumulate one gram a month for 17 years (204 months), you can reach the 200-gram target. Going by the current budget a surplus of Rs 2,000 a month is not difficult.

Your health insurance coverage of Rs 3 lakh for the entire family is too low. Do add a top-up policy for Rs 2 lakh. To meet your goals it is better to enhance your term insurance cover by another Rs 40 lakh and save Rs 2,000 monthly to meet the annual premium payment.

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