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A dash of equity

A few changes to Anirban's investment and insurance picks including a higher ELSS allocation should improve his outcomes

I am 31 and work at TCS. My salary is 70,000 per month. My wife works with a public sector bank and receives a salary of 25,000 per month. We have a one year old son. My parents are financially dependent on me. We will both retire at 58. I am not eligible for any pension.

Income Amount (₹)
Salary (Monthly Combined) 95,000
Expenses (Monthly) 40,000
Car Loan EMI 3,500
Fixed Deposit 500,000
PPF 600,000
EPF 350,000
Mutual Funds 50,000
Trading Account 50,000
Insurance Premia
Life Insurance (Monthly) 2,500
Health Insurance (Monthly) 500
Car Loan 300,000

What he has (Cash Flow)

  • Monthly income of ₹95,000 (self: ₹70,000; spouse: ₹25,000)

What he wants (Goals)

  • Holiday
  • Retirement
  • Child's higher education
  • Car Upgrade

What he should do
Emergency fund: Anirban has ₹5 lakh in a fixed deposit, from which he can earmark ₹2.60 lakh (six months' expenses plus car EMI) to meet any emergency situation. He can use the balance for his other goals (vacation/car).

Health insurance: Anirban has an individual health cover and a separate health plan for his parents. He can convert his current plan to a family-floater plan or buy one to also include his wife and child. He should increase the cover for his parents as they might need more than ₹3 lakh cover.

Life insurance: Anirban is under-insured; he has a traditional endowment plan with a sum assured of ₹6 lakh. He should surrender it as it is unlikely to offer returns that can beat inflation. The premium is also quite high. The surrender value can be assigned to one of his goals. He can buy an online term plan worth ₹1 crore from Max Life. The annual premium will be around ₹7,500.

Investments: Anirban works in the private sector and won't get any pension from his employer. Hence, saving for retirement is as much important as saving for other goals. To achieve this goal, he can use his current EPF and PPF, which will yield ₹34 lakh at retirement. Though the PPF has guaranteed returns and tax benefits, the returns are low. He can continue with the minimum investment to keep the account active and divert his tax-saving investments to an ELSS. He can continue with all his funds. Also, he shouldn't try to time the market. It's better to avoid trading. One should invest in what one understands. The best option is to regularly invest through monthly SIPs irrespective of the market conditions. This will help average the purchase cost and enhance returns.

Anirban also wants to upgrade his car and go for a vacation in five-six years. For car upgrade, he can use the FD surplus of ₹2.40 lakh. He needs to revisit his portfolio once a year and rebalance it, if required. He should switch to debt funds two-three years before reaching the goal to lock his returns.