I am 39 years old and my wife, a home maker, is 34. I have a 4-year-old daughter and a 5-month-old son.
I have taken three child policies and they will mature in 2018, 2027 and 2030.
I plan to invest Rs 5,000 for my son’s education.
I am allowed to work till 65, but do not have provident fund benefits.
For my son’s education should I maintain a separate portfolio? Please suggest some investment strategies to reach my goals. I can take high risks as an investor.
- Hiran Sai
Your risk appetite and investment strategy seem to be at variance. In your portfolio, both equity and debt have been given equal weights. Such a portfolio reflects a moderate risk profile.
Investors tend to make the mistake of putting in money in endowment insurance plans for their children’s education.
The PPF would have been a far better option. In most of endowment products, the return will never exceed 5-6 per cent and risk cover would be too low.
For example, if you invest Rs 10,000 every month month for children’s education for a period of 18 years, a difference of 2.5 percentage points in returns means a corpus that is lower by Rs 10 lakh .
Coming to your portfolio, investing in 11 funds through the SIP mode may not help you. Prune it to 3-4 schemes.
Hence your portfolio needs to be modified in accordance with the asset allocation proportion indicated.
Since a few of your endowment polices have been started into recently, discontinuing now will mean that you will lose your first year premium. If you continue the policies, at maturity, you will receive a sum of Rs 10 lakh. To meet the shortfall for your daughter’s education, you ought to save a sum of Rs 9,260 per month for the next 14 years and it should earn 12 per cent returns.
For her marriage the present value of Rs 10 lakh will be Rs 41 lakh, if inflation is at seven per cent. To reach the corpus, you need to save monthly, a sum of Rs 3,670 for next 21 years and it should earn a return of 12 per cent.
If you can monitor all schemes, then you may have a separate portfolio for your son’s education.
For your son’s higher education, you may need Rs 40 lakh. To accumulate this amount you need to save Rs 6,050 per month for the next 17 years provided your portfolio delivers 12 per cent.
The current monthly expenses of Rs 20,000 will be Rs 1.16 lakh when you reach 65, if inflation is 7 per cent. To receive such a monthly income at retirement you need to have a corpus of Rs 2.28 crore to sustain till you turn 85 and it should earn one per cent return over and above inflation. Your current savings in PPF and pension plans are inadequate. To reach the target you ought to increase the saving by another Rs 7,225 per month for the next 26 years.
Your current monthly surplus may not allow you to save for all the goals simultaneously. . However, since you will have a longer working life you can increase your savings steadily .
If there is a shortfall in the savings you can sell a plot to meet the needs at a later date.
Increase your term insurance cover by another Rs 1 crore.
No comments:
Post a Comment