Despite heavy reliance on real estate, the Patils will be able to meet their financial milestones with

their high saving rate and if they alter their investing preference and shift to mutual funds.
T
he risk appetite for most
investors ranges typically
between low and medium.
This invariably translates into
portfolios that veer alarming-
ly towards real estate and debt invest-
ments, including fixed deposits and tradi-
tional insurance policies. The more dar-
ing ones have a sprinkling of equity, with
a few stocks and mutual fund invest-
ments. The Patils, too, have found the
nerve to venture into equity, but the in-
vestment is inadequate since their focus
has expectedly been on real estate and
debt. Still, the high income and savings
will ensure that the family reaches its
goals comfortably.
Vivek Patil,35, is a scientist in a govern-
ment organisation and stays with his
33-year-old wife, Priti, who is a school
teacher, in Thane, Maharashtra. They
have two kidsseven-year-old Atharv and
two-year-old Arnav. Viveks monthly take-
home salary is a comfortable `65,000,
which is supplemented by a rental in-
come of `18,500 and `7,000 from Pritis
salary. The total household income adds
up to `90,500.
As for the financial outgo, the Patils
spend `31,167 in household and miscella-
neous expenses. A large chunk of their in-
come, `32,000, goes into paying the EMIs
for the two home loans that they took in
2006 and 2009. While they live in one of
these houses, the other has been rented
out. The loan repayment for both the
houses will end in 2021. Besides these ex-
penses, they spend `4,000 on Atharvas
education every month, while `2,750
goes as premium payment for their
insurance policies. This leaves them with
a surplus of `21,583, which will have to be
invested in equity if the couple wants to
reach their financial milestones. Their
major goals include building a contin-
gency fund, corpuses for their sons
education and marriages and their own
retirement. Since I didnt know how to
calculate the amount I would require for
all these goals, I thought of approaching a
financial planner, says Vivek.
Before Pankaaj Maalde of Apnapaisa.
com lists out a road map for their financ-
es, he wants to assess their insurance
portfolio. Vivek has adequately covered
his life with a `50 lakh online term plan
and also has four traditional insurance
policies. After considering their present
surrender values and future premiums
payable, the expected maturity values
based on the current bonus rates are
likely to beat inflation. Hence, Maalde
suggests that they retain all of these poli-
cies as the debt component of their port-
folio, and these will help meet some of
their financial goals.
As for health insurance, the fact that
Vivek is a central government employee
means that their medical expenses will be
taken care of even after retirement. So
they dont require any medical insurance,
but Maalde suggests they buy an accident
and disability insurance worth `50 lakh,
which will cost them `7,000 annually and
can be easily covered by their surplus.
Next, the Patils need to build a contin-
gency corpus since they have neglected
one. Since they require `2 lakh, which is
equivalent to their three months expens-
es, they should allocate their cash reserve
of `1 lakh and fixed deposit, which will
suffice as emergency corpus. They should
invest this amount in a liquid or ultra
short-term debt fund.
To plan for their other goals, they can
begin by taking care of their sons educa-
tion needs. For their older son, Atharv,
the Patils will require `28 lakh in 11 years.
To amass this amount, they can allocate
their current mutual fund SIP of `1,500
and enhance it to `8,500 in an equity
fund. The Patils are also advised to sell
their stock holding and invest in mutual
funds. For their second sons higher edu-
cation, they have estimated a sum of `46
lakh in 16 years. To get to this milestone,
they need to invest `7,500 through a
monthly SIP in an equity fund. At a
growth rate of 12%, they should be able to
meet this target with ease.
To accumulate funds for their childrens
weddings, the Patils have zeroed in on sums
of `28 lakh and `45 lakh in 18 and 23 years for
Atharv and Arnav, respectively. To meet the
first target, Maalde advises the Patils to allo-
cate their traditional insurance policies. Be-
sides these, they will have to start an SIP of
`1,000 in an equity fund, and another one of
`500 in a gold fund. Combinedly, these will
amount to the desired amount. For Arnavs
wedding expenses, the Patils need to start an
SIP of `2,500 in an equity fund and `500 in a
gold fund. Together these will yield the `45
lakh they require in 23 years.
To plan for their retirement, the Patils can
rely on their existing resources and dont
need to make a fresh investment. They will
require nearly `5.5 crore in 25 years to con-
tinue with their current lifestyle after retire-
ment. For this, they can allocate their EPF
and PPF corpuses, which will yield about `78
lakh at 8% in the given time frame. The big-
ger chunk will come from their second
house, whose value will be about 5.13 crore
in 25 years at a moderate appreciation of 8%.
These will provide them with the required
retirement kitty in the specified time.
The Patils have another goal of taking a
European vacation in another 10 years. This
will cost them nearly `10 lakh at the current
cost. However, currently they dont have any
investible surplus as it has been exhausted in
planning for the other, more important,
goals. If, after a few years, their income sees
a sufficient rise, they can assess their finan-
cial situation and allocate funds to this goal
accordingly. If not, they can postpone the
goal till the time they think they can meet it,
or abandon it, but should not sacrifice the
more important targets for it.
Goals within reach with
higher equity exposure
PATILS GOOD MOVES...
Having a high savings rate.
Purchasing online term plan
for insuring life.
Maintaining a contingency
fund for emergencies.
AND THE BAD ONES...
Having a high exposure to
real estate.
Not making sufficient equity
investments even though
goals are for the long term.
Not earmarking invest-
ments for specific goals.
ASSET ALLOCATION
EXISTING
93%
Real estate
5%
Gold
2%
Cash
5%
Debt
1%
Equity
1%
Cash
15%
Debt
RECOMMENDED
Financial planby
Pankaaj Maalde, Head, Financial
Planning, Apnapaisa.com
45%
Real estate
33%
Equity
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The Economic Times Wealth, July 7-13, 2014
19
Family Finances