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Planning for life's major goals

Devendra is yet to pass his life's leading milestones such as buying a car, marriage and children. A combination of well chosen mutual funds and insurance policies will ensure a smooth journey

I am 28 years old, not yet married and drawing a monthly salary of ₹1 lakh. My goals are, marriage expenses (short term), buying a car (short term), a retirement corpus and children's higher education. Recently I purchased a house in Hyderabad for ₹25 lakh. The housing loan has a term of 15 years and its EMI - 26,000 per month started in Dec 2015. The house earns a rent of ₹8,000 per month. My employer provides me health insurance. I have two ongoing equity SIPs of ₹5,000 each. Going forward I will be able to invest more into equity mutual funds for which I need your suggestions.

Income Amount (₹)
Salary 100000
Rent 8000
Expenses 41000
Mutual Funds 200000
Emergency Fund 240000
Fixed Deposit 100000
NSC Bond (5 yr maturity) 5000
EPF 300000
Insurance Premia 28520
Loans/Liabilities 2500000

What he has (Cash Flow)

  • Monthly income of ₹1,08,000

What he wants (Goals)

  • Car Purchase in four years
  • Marriage in mid 2017 approx
  • Retirement at 55
  • Childrens' Higher Education

What he should do
Emergency fund: Devendra has an emergency fund of ₹2.40 lakh. He can bring it down to ₹1.23 lakh, which is equal to his three-month expenses. After his marriage, he should increase the emergency fund to six-month expenses. The emergency fund can be kept in a sweep-in account so that it earns higher returns.

Health insurance: Though Devendra is covered by his employer, he should also buy a personal health plan. Religare Health Insurance Comprehensive plan (sum assured ₹3 lakh) is good for him. It also has a critical-illness component. Once he has a family, he can upgrade it to a family-floater plan. Apart from the health plan, he should also go for a personal accidental plan, which will be useful in case of any accidental injury or disability. He can go for Bharti Axa Smart Individual policy.

Life insurance: Devendra has no financial dependents, so he doesn't need life insurance. He must buy a term plan once he is married. He should also surrender his Jeevan Anand and Bajaj Sarva Shakti Suvidha policies as these provide neither enough insurance cover nor good returns.

Investments: See the adjacent page for how much he needs to invest for his goals. For his retirement, he can use the accumulated sum in his existing funds and the EPF, and do SIPs in mutual funds. For the short-term goal of buying a car worth ₹7 to 10 lakh, he can use his fixed deposit and start a monthly SIP in a short-term liquid fund. For marriage, he can use the excess money in his savings account and also invest in an ultra short-term liquid fund. He must postpone planning for his children's education till he gets married. Devendra can continue with Axis Long Term Equity, Reliance Tax Saver and L&T India Prudence funds. Since sectoral funds provide limited diversification, he can exit SBI Pharma Fund. See the next page for a list of our recommended funds. He should switch to debt funds from equity funds two to three years before reaching the goal to lock the returns generated.