Family Finance: Why Pandas need to increase investment in line with goals

Nisith, an architect, and Soma Panda, a homemaker, live with their son, 7, in Bengaluru. Panda brings in a salary of Rs 1.4 lakh a month.

He has taken a home loan, for which he is paying an EMI of Rs 22,000, and is also investing Rs 19,000 a month in mutual funds. After other expenses, he is left with a surplus of Rs 42,917. His goals include saving for contingencies, child’s education and wedding, and his retirement.

Portfolio


Cash flow


The financial planning team of Fincart suggests that he build a contingency fund of Rs 3.8 lakh, which is equal to five months’ expenses, by using a portion of his cash holding of Rs 4.5 lakh. This amount should be invested in a liquid fund for better returns. Panda also wants to buy a car worth Rs 6 lakh in a year’s time.

Fincart suggests that he allocate his stocks and a portion of his mutual fund corpus to achieve the goal without taking a loan or making any further investment.

How to invest for goals

Annual return assumed to be 12% for equity. Inflation assumed to be 7%.

For his son’s education expenses of Rs 42 lakh in 11 years, Panda will need to allocate his remaining cash and mutual funds, which will fund 42% of the corpus. For the remaining amount, he will have to start an SIP of Rs 9,312 in an equity fund. To amass the corpus of Rs 38.6 lakh for the son’s wedding in 19 years, he will have to start an SIP of Rs 4,465 in an equity fund.
Finally, for his retirement in 19 years, he will need a corpus of Rs 3.8 crore. To meet this goal, he will need to allocate his EPF, PPF and postal scheme corpus. For the remaining amount, he will need to start an SIP of Rs 34,872 in an equity fund. Since he still has some surplus left, Panda should invest Rs 6,409 in an equity fund to build a buffer or use it for annual vacations.

Insurance portfolio
Premiums are indicative and could vary for different insurers.

As for insurance, Panda has a term plan of Rs 75 lakh, but needs another Rs 2.8 crore of cover. This will come for Rs 4,308 a month. He also has a family floater plan of Rs 5 lakh, but should buy another Rs 5 lakh of cover and Rs 20 lakh of a top-up plan, which should also take care of critical illnesses. The additional cover will cost him Rs 1,763 a month.

(Financial plan by FINCART)


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