Invest in SIP, ETF to fund retirement
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* Name: Mr & Mrs Rahul
* Job: Salaried
* Age: 30 years
* Dependants: None
* Income: Rs 12 lakh/year
Name changed to protect identity
Rahul Gupta is a 30-year-old employee of Mumbai-based manufacturing plant. His wife works as a manager in an accounting firm. They got married about three months back. The Guptas have a combined income of Rs 12 lakh and have no dependants. Annual outflows is Rs 4.80 lakh (Rs 3 lakh for household expenses and Rs 1.8 lakh for rent). Children are few years away and therefore the immediate goal is to secure a housing loan for about Rs 50 lakh.
Savings
Currently, they save Rs 7.2 lakh every year. But after they buy a house, the monthly interest outgo will be over Rs 45,000 until the flat is ready for occupation, whereafter they would save on the rent. Once the home repayment begins, the annual savings will come down to Rs 1.8 lakh a year. Currently, they have cash and investments worth Rs 8.5 lakh and have a liability of Rs 2.25 lakh on credit card. So their net worth is about Rs 6.25 lakh, which could form a contingency fund that lasts for about one year.
Financial goals
In the short term, they would require Rs 5 lakh to pay as their contribution for securing a home loan of Rs 50 lakh. In the medium term (3 to 15 years), they would need Rs 34 lakh for the education of their child education. In the long term, they would require Rs 10 lakh for their child’s marriage and would need Rs 2.85 crore for the retirement. Overall, they would need Rs 3.64 crore.
The way forward
TAX SAVING: Invest Rs 1 lakh in either equity-linked tax saving schemes or new pension scheme or PPF.
LIFE INSURANCE: Take a term insurance to the extent of the proposed housing loan of Rs 50 lakh, which may cost about Rs 15,000 per year. It should be taken for the longest period or at least the tenure of the housing loan.
MEDICAL INSURANCE: Take a health insurance cover of about Rs 5 lakh, which is over and above the benefit receivable from the current employer. This would entail an expense of Rs 6,000 per annum.
CHILD’S FUTURE: Two PPF accounts may be opened with a contribution of Rs 70,000 each. This will yield eight per cent pa tax free returns and could be useful for child’s marriage or education.
RETIREMENT: The rest of Rs 19,000 can be invested into a systematic investment plan in equity or gold exchange traded fund. This could create corpus for the retirement, in addition to the house property.
(L. Ravindran, PhD, is a financial adviser and MD of Wealthmax Enterprises Management Pvt Ltd)
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