I earn ₹1 lakh per month after taxes. Currently, my systematic investment plans (SIPs) are as follows: ₹4,000 in Axis Long Term Equity, ₹5,000 in Axis Triple Advantage Fund, ₹3,000 in UTI Long Term Equity Fund, ₹2,000 in UTI Flexicap Fund, ₹4,000 in UTI Midcap Fund, and ₹3,000 in Mirae Mutual Fund’s equity-linked saving scheme. Additionally, I have investments of ₹33,000 in UTI Ultra Short Term and ₹70,000 in UTI Liquid Fund. Also, I have ₹8 lakh in the public provident fund (PPF) and ₹3 lakh in bank fixed deposits. My insurance coverage includes a company mediclaim with ₹20 lakh family cover, a company term insurance policy worth ₹60 lakh, which is five times my annual salary, and an LIC term plan with a ₹10 lakh cover.
What steps should I take to achieve my financial goals, which include purchasing a car worth up to ₹10 lakh, buying a house valued at ₹1.2 crore, building a retirement corpus of ₹1 crore, funding my child’s foreign education, and undertaking international travel to different countries over the next five years ?
—Anand
At the outset, we would like to mention that we have to take multiple assumptions to arrive at a response for you.
Car and foreign trips: Assuming each foreign trip requires ₹2 lakh each, you would need a total of ₹20 lakh (including a car) over the course of five years. You will need to save around ₹30,000 per month in liquid funds to meet these expenses.
House: You will need to finance the new house by a mixture of selling your existing house, partly own funds (~15% of new house) and partly home loan (remaining ~35%). Assuming that you need to buy a house in the next six years, you would need to invest in monthly SIPs of ₹20,000 at 10% XIRR (extended internal rate of return) to generate around ₹20 lakh, which you can use as down payment.
Retirement fund: Assuming you have around 30 years for your retirement, you will need to have an SIP of ₹9,000 at12% XIRR. This will help you meet your objective of ₹50,000 per month adjusted for 30 years of inflation which would come to around ₹2.15 lakh per month.
Child’s education: Assuming ₹80 lakh would be required for child’s education and self-funding of 20%, you will need ₹16 lakh after 15 years (assuming your child would go for higher education after 15 years). This can be generated by having an SIP of ₹4,000 at 10% XIRR. The rest can be funded by an education loan.
Term life policy: We would suggest that you increase your term life policy to have a cover of 10 times your annual salary. We would suggest you keep six months of expenses as emergency funds in liquid funds. Also, increase your SIPs as you get increments in your employment. This would help you meet your goals faster.
We have considered 10% returns which is conservative considering historical returns in Indian equities.
Vijay Kuppa is the chief executive officer of InCred Money (formerly Orowealth).
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Updated: 21 Jun 2023, 11:03 PM IST