Reader's Financial Plan :: Business Line

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I am 54, and a retired bank employee. My 58-year old husband is a financial consultant. We have a son studying in Std 6. We are in good health and have a health policy for ₹3 lakh. I have a term insurance for ₹10 lakh. I am continuing our home loan for tax benefits. Please suggest a plan to meet my son’s education expense of ₹25 lakh and lead a comfortable life till 80 years.

Nalini Kamath

It is surprising to see that you have a home loan while saving in recurring deposit and insurance. If your intention is to save tax, you could have opted for SIP in equity linking savings scheme and ULIP.

Since you are in the 10 per cent tax bracket, effective savings on borrowing cost is only 1 per cent — or a home loan rate at 10 per cent, your interest rate is still 9 per cent, after adjusting for Section 80 C savings.

In the next financial year pay off your home loan. You can get tax benefits under Section 80C for the principal repayment.

For tax saving, invest in ELSS which will also give better returns compared with recurring deposit (RD). You have adequate fixed deposits to meet emergency needs. Retirement: If your pension grows at 4 per cent and inflation averages 7 per cent, you will face a monthly income shortfall before you turn 67. You must, therefore, build a corpus to supplement your pension income.

Earmark your direct equity investment for your son’s education. Assuming that the portfolio delivers 12 per cent return, in six years the corpus will double to ₹40 lakh. Invest the balance in equity mutual fund for your retirement. If the mutual portfolio earns 12 per cent return, after 14 years you will have ₹76 lakh. When you are 68 years, you can be conservative and move to debt. Have medical cover of at least ₹7 lakh.