Flnances @

eggslnonelret

93% of surptus is exhausted by home loan monthty instalments

investment in equities; no debt cushion apartfrom mandatory provident fund

8t

I

tife insurance; no health and property cover

t portfolio

{l.imsEnmts," sPlains Mohit.

tlrehuge nn orpenseleaves negli-

L'J${bt

Hf '

t

IFA,p;

md996r

the Agarwals canbenefitby diversifying their

ln real €state, IinvesEnentopdon,"

MohttAgarwal, who is:ar-oldlcitdka. Thecouplelive ln Gugaon

andtm-homemi1.74laldrffry

lnvestible surplusThereasonls heawbles

as an asset a'lass, the cou'bulryhome loans. lhelr

has notonly

also deorivedtheirdlHslffcadon.

softirare prcfeslonal, eams 4.25monthandlGitdka, a doctor, hm asalary of ?49Poo. The @uple lire inaparfiimt md their monthly

lnduding the rmt of a2o,ooo, areThe two llfe lnswmce policies ale

<8,250 from thelr monthlypool on m avenge, The expenses

iretalments offor tm home loam m accouted

have irvested tn two propertiesonels af,atthatis under

t 85 lakhbalance dfl7-yeat EMI outgo of

month.ltle oths ls aplot,worthtSSlakhmdasem-yeilof (33POO p€r month. "Bodr de

I gble for the couplet long-term goals'onlytrc

and graduatlon, son'sgraduadon, marriagescouple's retimenl

needansrplus mrymonth

putsideonly"Thffiare fairlylong-

andmywife havegptthisyeil. wear€

lnowinghowtheincome cmbe put to good use,"

-*

S""lng abouthatf the income

lrwesdng In real estate at anearty age

I:D ** ,nuar t rngrnequ l les

through SlPs or anY other

route

Not maintaining an adequate

debt cushion

Buylng inadequate tife

insurance cover

Not buying heatth andpropeny cover

tresdble surplwwlll lrnPrcvebyll7,Oooequatlngto ?22,750, whidr is much lowerthan the amomttheynedto adri*thelrgoals. Also, wtththe reslonsibtllty of two lddsmd the liabilities Agarwals have, lt ls inpera-tivethattlEykeep aside a panof Arcirsuplus for mergencis.It is advlsabk Antwff the nqt couple of months, Agwdsbulld a ontlngency corpu equfualent tothree montlts' lncome.

Imu.fficient surpl$ is not the only isue.'Mth sudr htgh ogosw to real estate,Agarwals' asset alocadon is undirerslfi ed.The ouple have zero invesEnent ln equides.Apart from the mmdatory EmPloYeeI,rwidfltF\m4 th€yhrve no debt mhion.The flnanclal plarming rule book srongly dleourages uch a porfolio. one should nmrIcepalltheir eggs inonebasket. WhatiftheAgiamals don:t getthekindofreilmstheyile€ryectin8? What ifthereis actudlyaredeStateprlcebubblewblchbuFts?TtErcladl'ttyin interdtEtstsfurtherreducingthemdibllity of real estate :rs m lnvestrnent. A '

survey bry pfl estatewebsite Mal€at.comshows dEt 55% ofpotmtial home buyerseQectEsidentialpropertyprlcestofdlby

20% ormore in2Ol1. Itis s€enthatnosln8Xeassetperforms conslstendy for a long periodoftlme. Diwreified ccet allocadon ls baedon the nodon that em s dlffemt dsetsmove up md down, one gets conslstent av€r'age rehtrns ln one's pordollo. Also, realestate ls ahigtilyiuiquld a6setdass and ther€

are matntenance costs associated wlth it'whldrmaybe tm dlfrclrltto hmdle. Hence'we sqgestthatAgwals should sellthelrDlotof landand use the moutto prepaythe

ioan. 'Itrey should inwst the rernainlrgprcceeds Lr dfueslfled equitY fimds.trTresEnents en take place over a period of

six months through sy$emhtic investnent

Dtans (SIPS) to decreas the risk ofrclatility.wedtrcare S.cu"itis su88$ts dlrccdlngauSIIrs to HDFC F4utty Fun4 ICICI PrudendalDynanic Fun4 Ftdelity Equity Fund ild Bh'la sunlfe Equity Fund. The lm ltablltty'includingthe pre'payment dlargFs' wt[ beabout(22lakh.

For the lMng standard tlEt the Agwdswmt to maintain afts retlrement, theywlllned t6.55 ffie. '!he couple's EmployeeProvident Fund and insurane policis wlllbe able tb fund about 54% ofthe need. The Fmainlng corpu can be bdlt Ningtwo opdons. One, Agarwals canslDhon ofrthe entire balance oftjg hkh from the proper.ty saleDmeeds twards theirredremmt. ttris way, theYwill nothave to make any furtherlnvestnmts to scue their oldage. The EMI6gotflardsimprovingtheir surplus fifther to (55,750.

The amountwillbe more thm sufrcient to

achiere their otltu goals.They m dso lmk at mother oPdon,

whidrwill satis&their desire to keepinvesdnginred estate. Theycmkeep ?1Olakhforredrement. Insdla ffi, AgN.alswill nedto invest A8,OQ0 ererymonlhin dl'versified equity funds tlrcu8h sIPs. Thebdmce of t23 lalh cm be used m dm pay

mmtforbuyingahouseof aboutt8olakhlnaboutfouto fiwyears. Assuminganannualgwthof 12%, the inrestrnentwill growto

;bout t36'hkli ih'four yearc. Bythen, thet ln'come shorilfr iis6increase andtheyshould

The E@nomlc Tlms W[|[|, J6nuary 31' 2011

abe abletosffod a l7']€arhome los oft'lolald at Ale rate of 9% pa annum. Also, in the iirnqt fouto fiwyem, Agmls' Pordoliowould adrleve the much ne€deddft€rslflcadon.- Thesuple uiderstandtlrcsignlflcaneofsflingin time for Orc eduetion of their '

children. Agarmls see an experoe of tlo lallteadlfortheir darighterS college andp6t-gaduation. The fimdneedsperainiqgtothese goats e lil€Iyto ads infil md 16ym. Aming m mual inlladon of 7%'theywltlneed<24 lakhand?29.5 lakhforthese twogpals. Tbe couple will hare to tNst

?6,474 md t5,128 ln mutual firnds thrcugh

SIIrs tobulld the corrcsPondlng suns-Fortheirson's collegEand post'gmduadon

too, Agarwels for€se a requiremmt offlohkh e;ch. To frrlfil thes tarSgts ln 14 ild 17 ayeas respectlrely, theywlll need (25.8 Lakh

md ?31.6 laltr. Building thm conespondingarnoutswllt need a mondrly invetnmtof 6t5,g6Tmdt4,Z6lnequityfundsdmrrgh !

SIP8. f'Agarwats also wut to stock m mPle

amount of money fm thelr Hds' miages.The aouple€xpecttheir daughtefs marrlagetocost(25laldlandln22yen,theywlllned?1.1I mre, to nmcethis oQen*. Fortheir sorfs marda8e,theyforesee m enpenseof(lo hk}L The amount could escalate tot5O.7lalfi ln24yea$. Inorderto gentrate

these amomts, the couple need to sttrtfunesttngt8,632 and ?3,O6a respectfuely, ona monthlybasts Inequityfirnds through sIPs.

Agarwals hareboughttrcLtlips to lnsurethelr ltres. It i8 best tf one keepa insumce

and investnents separate, butAgarwds have

alreadybome the greeter part of the cost

associated wlth the tsoFolldes. Hence' it is

not advlsable for them to e)dt the Policies' IHence, we have addsedto utilis theh t

bdefits for bu[dlngttE redremeht corpus.The couple need a lot more insNance thm .theybeli-evetheyshould.Giventheirctrh !nee&, the couplemusthave m insurance ,:caxer of at least t7O lakh, but theh prcsmt

oolicie orovlde them with a over of onlyiga.z hlh. tlen*, *" suggestthat theybuy a

2s-year term plan of ?5o lald. The ilmualoremlum for it should be emmd fl 2'0oo.ilso, the couple ihouldimmediatelybuy a

morgagE lnsmce cmr equal to the homelm' value. Ttre cwerage maY be sPlitbetrveenMohitmd (rittikaaccorditrgto

thdtr lncome ratio. Wealthffi seffides sug-gests cwm ofreredbyHDFCLlfe lrEllmceud Metllfe forbuying mortgage insumce.

Agmals ue respomible for two kids and,hoce, hrving a health coer ls esen-dal. we swEpst that theybwa fami'lv-fl oater cwer of ?3-4 laldr md toPti up with a t2 lakh cowr. Bulng thetop-up ln Mohlfs namewillbe com"paradvely codt effecdve. The Pretrf-m for the fleter Plm shouldbearound <6,oooPerannm.

Agasals can't be Praised enoughfor amuladng agenerous amomt ot

wealth but they have completely ignored thediverslflcadon ofthe risk element. It is highdmetheymake amends. To increase the debtoshion, we sugget they oPen PublicProvldentFrmd acmsts in the name of allfamilymembere mdinwst regulady indrese.

Finandal plilbyhl6hcdpts"

Dlr€ctor Wealthffi Secwitis

!{od h.lp ilihYburLmllYf, nrndt?Wrlt"tdif . drnrjEdf,l@tindiadfrffi

come April, the ouPle's