Family Finance: Patels can reach their goals by increasing SIPs every year

Bhargav Patel stays with his homemaker wife and two kids, and also has the responsibility of his nephew, who is 15. Patel brings in a monthly income of Rs 1.25 lakh. He has taken two loans worth Rs 11.7 lakh for home and car, for which he pays EMIs of Rs 21,000 and Rs 6,600, respectively.

The financial planning team of Fincart suggests that he shift his home loan to one with a lower rate, which will bring down the EMI to Rs 18,000. He should also repay the car loan by using a part of his cash and fixed deposit.

Patel’s goals include saving for contingencies, kids’ education and weddings, retirement, vacation and a house. He will have to forgo the last two goals till a rise in income.

He can build the contingency fund of Rs 2.58 lakh by using a part of his cash. For his nephew’s education expenses of Rs 24.5 lakh in three years, he will need to allocate his fixed deposit, Ulip, stocks, mutual fund, and NSC.

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For his wedding in 12 years, he will need Rs 22.5 lakh and can amass it by starting an SIP of Rs 4,865 in an equity fund. For his older son’s higher studies in 10 years, Patel will need Rs 39.3 lakh.

He can assign one of his mutual funds and start an SIP of Rs 10,689 in an equity fund. For the younger son’s education, he will have to start an SIP of Rs 9,476 in an equity fund. Except for this goal, he will need to increase all the other goals’ SIPs by 8% every year to be able to achieve these.
How to invest for goals

Annual return assumed to be 12% for equity. Inflation assumed to be 7%. Except for the goal of 2nd son’s education, increase all SIPs by 8% every year to reach the goals.
For the weddings of his sons, he wants Rs 36.1 lakh and Rs 60 lakh in 19 and 26 years and will have to start SIPs worth Rs 2,505 and Rs 1,537 in equity funds. For the retirement kitty of Rs 15.2 crore in 26 years, Patel should assign his EPF, PPF, stocks, gratuity, mutual funds and gold. Besides, he will have to start an SIP of Rs 29,395 in an equity fund.

As for insurance, Patel has a term plan, health cover and an accident disability plan from his employer. He has also bought two Ulips and a health plan, but Fincart suggests he surrender the former. He should buy a term plan of Rs 2.7 crore and a family floater plan of Rs 5 lakh.

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Premiums are indicative and could vary for different insurers.

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