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tfolio with adequate debt-equity allocation
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etty, 32, who lives in Mumbai, earns Rs 14 lakh a year, while his wife¶s annual income amounts to Rs 7 lakh. Th
d have availed of home loans for the same. The total EMI outgo stands at Rs 40,000. Other expenses amouns are primarily in insurance policies, which entail a total annual premium of Rs 82,000. Mr Shetty¶s goals incl
within five years and saving for the education of his
MENDATION
crease in options for the type of education systems available today, the cost of children¶s education is escalating, esn for higher costs right from early education years unlike only for higher education from the 18th year, which ha
We feel a general inflation rate of 6% may sometimes fall short, keeping in mind the spiralling education costsities, etc. The Shettys¶ goal of building a corpus of at least Rs 25,00,000 for their son in his 18th year, would co
a 6% inflation
creation of an emergency fund for any unseen events which may disturb cash inflows in the short term. In such ws for a period of say, six months, they need to set aside Rs 3,50,000. With the current savings bank balance being
ld be built up over a period of a year by putting aside Rs 22,500 per month in a higher yielding liquid debt fund. Tealth and life insurance plans to ensure risk coverage
illnesses, etc, besides causing disturbances in inflows may cause a huge dent in one¶s outflows due to medication
mmended to take a family health insurance policy which may cost the family approximately Rs 10,000 a year. Aloars for approximately Rs 1.5 crore is advisable. Mr Shetty could top up his existing money back policy up to Rs 1
policy for the sum assured, which should cost approximately R
ding for the recommended insurance premiums on policies, they will have a surplus of Rs 58,000 per month. Theeeping in mind an asset allocation which would help them realise their goals without an excessive strain on their r
PF investment to begin with (which gives best tax effective, risk-free returns at 8% currently) for the debt allocat combinations to create a suitable
allocation, considering their young age and no investments, we recommend the balance (Rs 38,000 p.m.) to be in
utual funds in a systematic investment format. Out of this, Rs 16,000 pm could be allocated towards the child¶s cors would yield a return of Rs 67 lakh after 15 years. He could look at transferring this corpus to debt investment
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for his child¶s 18th
plan would need to be evaluated for all incremental salaries and at the time of repayment of home loan, money bany other material changes in cash inflows
askar-Apte, a certified financial planner, is a partner with financial planning firm, The Tipping Point
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Build a portfolio with adequate debt-equity allocation
23 Dec 2009, 0359 hrs IST, ET Bureau
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Text:
Praveen Shetty, 32, who lives in Mumbai, earns Rs 14 lakh a year, while his wifes annual income
amounts to Rs 7 lakh. They have purchased two
houses and have availed of home loans for the same. The total EMI outgo stands at Rs 40,000. Other
expenses amount to Rs 17,000 per month. Investments are primarily in insurance policies, which entail a
total annual premium of Rs 82,000. Mr Shettys goals include repaying the two home loans within five
years and saving for the education of his one-year-old son.
RECOMMENDATION
8/9/2019 Build a Portfolio With Adequate Debt-equity Allocation
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With the increase in options for the type of education systems available today, the cost of childrens
education is escalating, especially in metros. One may have to plan for higher costs right from early
education years unlike only for higher education from the 18th year, which has been an accepted
practice until now. We feel a general inflation rate of 6% may sometimes fall short, keeping in mind thespiralling education costs, extra curricular activities, creche facilities, etc. The Shettys goal of building a
corpus of at least Rs 25,00,000 for their son in his 18th year, would cost around Rs 67 lakh then,
considering a 6% inflation rate.
We suggest creation of an emergency fund for any unseen events which may disturb cash inflows in the
short term. In such a case, to provide for fixed cash outflows for a period of say, six months, they need
to set aside Rs 3,50,000. With the current savings bank balance being Rs 1,00,000, the remaining
amount could be built up over a period of a year by putting aside Rs 22,500 per month in a higher
yielding liquid debt fund. The Shettys also need to look at health and life insurance plans to ensure risk
coverage for dependents.
Accidents, illnesses, etc, besides causing disturbances in inflows may cause a huge dent in ones
outflows due to medication and hospital expenses. Its highly recommended to take a family health
insurance policy which may cost the family approximately Rs 10,000 a year. Along with this, a term cover
of up to 15 years for approximately Rs 1.5 crore is advisable. Mr Shetty could top up his existing money
back policy up to Rs 1.5 crore, or by taking a pure term policy for the sum assured, which should cost
approximately Rs 25,000 per year.
After providing for the recommended insurance premiums on policies, they will have a surplus of Rs
58,000 per month. The Shettys need to build up a portfolio, keeping in mind an asset allocation which
would help them realise their goals without an excessive strain on their risk tolerance. It is advisable to
start a PPF investment to begin with (which gives best tax effective, risk-free returns at 8% currently) for
the debt allocation. One could also look at floater-MIP combinations to create a suitable debt portfolio.
For equity allocation, considering their young age and no investments, we recommend the balance (Rs
38,000 p.m.) to be invested in growth and value-oriented mutual funds in a systematic investment
format. Out of this, Rs 16,000 pm could be allocated towards the childs corpus for the next 15 years. At
10% pa, this would yield a return of Rs 67 lakh after 15 years. He could look at transferring this corpus to
debt investments for the next two years, till required for his childs 18th year.
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Note: The plan would need to be evaluated for all incremental salaries and at the time of repayment of
home loan, money back from insurance policies and any other material changes in cash inflows and
outflows.
Prerana Salaskar-Apte, a certified financial planner, is a partner with financial planning firm, The Tipping
Point