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Mid-late 30s (Stretching)

Start an SIP in a conservative hybrid funds, called MIPs. These are primarily fixed income funds with a small exposure to equity, which means there's little risk of a big decline because most of the money is in fixed income, but equity part boosts the income higher than .These funds are a good option for investments of one to three years

Kiran and Arvind are in their late 30s. They both had good jobs but Kiran lost her managerial position with a large retailer during the 2008 recession and hasn't started working again. Arvind works as a manager in an IT services firm. While his job has been stable, salary hikes and prospects have been much less than they used to be earlier. They have two children, ages 10 and 7.

Arvind earns ₹1.2 lakh a month as an IT manager. However, they have ₹65,000 a month EMI for fancy apartment that they bought in 2007, EMIs continue till 2022. Two children, 10 and 8, job uncertain. Existing savings. ₹3 lakh in PPF, ₹1 lakh FD. 2 ULIPs. (Sell house for a cheaper one?) Advice: Emergency: ₹6 lakh. Term: ₹1 crore + House EMI. Biggest problem to be solved is House EMI. Explore whether house can be downgraded conveniently if it substantially lowers EMI. Otherwise, there is no room for financial savings till the EMI is done.

What They Have:

  • Income: ₹1.2 lakh a month
  • Monthly Expenses:
    • ₹65,000 EMI in house for nine more years
    • Rest of the salary is barely enough to get by.
  • ₹3 lakh in PPF, ₹1 lakh fixed deposit, Two ULIPs

What They Want:

    • Higher education for two children
    • By their own house
    • Save for retirement

    What They Should Do:

    1. Emergency Fund: In this day and age, no one can be without an emergency fund.
    2. Health Insurance: The next important step would be for Bharat to buy health insurance for himself and his brother. They are young and healthy, but sudden medical problems can strike anyone. A basic family floater health insurance of ₹50,000 to 1 lakh will cover both of them at just about ₹XXX a month. Buying health insurance when young and renewing it regularly will be of great advantage as they grow older. Sadly, choosing health insurance is more complex than it needs to be. These two articles elsewhere on this site have all the information they need: How to buy health insurance and A Top Up for your medical needs.
    3. Life Insurance: Like in the case of health insurance, one could say that at his stage in life, Bharat does not need life insurance. However, for the time being, his brother is dependent on him. Given the circumstances, he should take a term insurance policy of about ₹10 lakh. Since he is young, he can take a 25 year policy for barely ₹100 to 150 a month, which he can well afford even with his limited income. Young people are charged very low premiums and these premiums in life insurance don't change.
      He should not buy ULIPs, endowment plans or any other insurance product that mixes savings and insurance. Pure term insurance is the only insurance product that should be bought. Information on the process of choosing and buying insurance: Lest calamity strikes and How to really buy insurance. A wide range of advice and product-specific information is available at "https://www.valueresearchonline.com/insurance/.
    4. Investment Portfolio: It's time to be realistic. Given his limited income, Bharat's dream of moving to a larger house will have to be postponed for the time being. A loan of ₹10 lakh will not only be too much to repay, he may not qualify for one with his current income profile. Perhaps, in the future, once his brother is no longer dependent on him and perhaps if Bharat has a wife who works, it may become possible.
      For the time being, he should focus on saving up the ₹1 lakh that he wants for his marriage. More importantly, he will start to build up the saving and investing habit. Since Bharat's income is too low to be taxed, the usual first option of ELSS funds is not needed for him. Instead, he should ideally start an SIP in an conservative hybrid funds (which used to be called MIPs). These are primarily fixed income funds with a small--10-20%--exposure to equity. This means they are a good option for investments of one to three years.
      In this type of fund, there's little risk of a big decline because most of the money is in fixed income, but equity part generally boosts the income a few percentage points higher than just fixed income.