You can pay off expensive loans
Ashwin Kumar Singh, 45 years, is the general manager of a pharma company. His family includes his wife, a home maker and two children aged 12 and 10 respectively. His parents stay in Mysore and are financially independent as they
get a pension income from their past employment. Mr Singh’s annual income and yearly household expenses are `12 lakh and `6 lakh respectively. Life insurance premium and payment of interest account for about `3 lakh per annum. The total disposable income is about `3 lakh per annum. Mr Singh would like to continue working for as long as his health permits and is very keen to pay off all his loans immediately and lead a debt-free life.
Financial goals
(at current costs)
His primary goals are children’s education and get them married.
Where are they now
They stay in their own home (pending a loan liability of `5 lakh) and have a car (pending a loan liability of `2.5 lakh). They have jewellery worth `25 lakh, insurance policies of `25 lakh of sum assured, `5 lakh worth RBI bonds, shares worth `10 lakh, a bank balance of `2.5 lakh. Over and above that, the family owns two plots of land worth `10 lakh. The employer has provided a medical cover of `3 lakh for the family.
Recommendations:
n He should pay off the car loan as it is the most expensive of his loans and then he should pay off the home loan depending upon the avilability of liquidity.
n Take a life insurance with a term cover of `50 lakh for a 20-year term, which will cost him `22,000 per annum. This is to protect his family in case of any eventuality.
n Invest in a pension plan for 10 years with a contribution of about `1 lakh per annum. Upon reaching the age of 55, he will get `12,000 per month for lifetime as annuity, assuming an eight per cent per annum growth during the contribution period.
n Invest in two equity-diversified mutual fund schemes with a monthly outgo of `10,000 each through a systemic investment plan for the next 10 years. Conside-ring a growth of 10 per cent per annum, this will translate into a corpus of about `40 lakh at the age of 55. He may wish to continue SIPs for longer periods but may have to tone down equity contributions and maintain a mix of 40 per cent or less in equity wile maintaining the balace in debt.
n Take a disability and job loss insurance.
(L. Ravindran, PhD, is a financial adviser and MD of Wealthmax Enterprises Management Private Ltd.)
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