Match investments to goals

A few adjustments to Shyam's investments will set him on the right track

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Match investments to goals

Shyam (38) is married and has two very young children, each five months old. He also supports his elderly mother. He owns his home. He wants to take care of his children's education and marriage and his own retirement. Here is a financial plan for him.

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Emergency corpus
Shyam does not have an emergency corpus as such. One should have an emergency corpus equal to one's expenditure for six months. For Shyam, this amount comes out to be Rs 5 lakh. He should split this amount between a sweep-in FD and a short-term fund. This will provide him the necessary liquidity with reasonable returns. He has roughly Rs 4 lakh in fixed deposits. He can move this amount to the sweep-in FD. He should also move another Rs 1 lakh from his equity and balanced funds to a short-term fund. He can go for either Birla Sun Life Short Term Fund or UTI Short Term Income Fund.

Health insurance
Shyam and his family, including his mother, have a health cover of Rs 10 lakh, provided by his employer. He contributes Rs 16,000 per annum towards this cover, too. It is a good idea to supplement this with an independent cover of his own. Buying health insurance afresh at a later age is usually a more expensive and inefficient proposition. He can opt for a family-floater cover of Rs 5 lakh. The recommended plans are ICICI Lombard Family Floater or Apollo Munich Easy Health (Rs 13,000-16,500 premium per annum) for himself and his family (other than his mother). For his mother, he can take a look at Apollo Munich Optima Senior. It will cost him about Rs 22,500 per annum for a Rs 5,00,000 health cover.

Life insurance
With a personal term-insurance cover of Rs 3 crore and an additional Rs 1 crore from his employer, Shyam is well provided for with regards to life insurance.

Shyam wants to accumulate about Rs 10 crore for his retirement. Going by his current expenditure, however, he will need around Rs 13-14 crore. His current SIP of Rs 30,000 per month will only provide for about 60 per cent of his desired retirement corpus of Rs 10 crore. He should step it up to at least Rs 50,000 by moving money from other goals to his retirement goal and by cutting down on his expenses. To accumulate Rs 13 crore, he should do SIPs of Rs 65,000-70,000 per month. He should also increase his retirement SIP by 10 per cent yearly.

Child's education and marriage
Shyam wants to build a corpus of Rs 5 crore for his children's education (Rs 2 crore) and marriage (Rs 3 crore). Shyam's SIP of Rs 15,000 will meet his kids' education goal. He has set aside too much money (SIP of Rs 10,000 per month for 25 years) for his children's marriages. He can reduce this particular SIP by about Rs 5,000 and reallocate this money to his retirement goal.

Shyam has ongoing SIPs in five funds: ICICI Balanced, Birla Balanced 95, ICICI Multicap, Motilal Multicap 35 and Mirae Emerging Bluechip. These are all top-rated, with the exception of ICICI Multicap. He can consider switching to Franklin India High Growth Companies or SBI Magnum Multicap.

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