Rangacharis are unlikely to face any challenges due to savvy investments

By Pankaaj Maalde

A conscientious investor may not necessarily be prudent because aggressive investments don’t always translate to optimum returns. Yet, Vijayaraghavan Rangachari is likely to turn this conventional wisdom on its head. He does not have the right mix of assets in his portfolio— 82% in real estate and a minuscule 5% in equity. However, the diligent and disciplined investments over the years mean that he will face little problem in achieving his financial targets. There are, of course, flaws but these can be easily rectified. To help Rangachari realign his existing resources with his goals and suggest a course of action for the future, financial adviser Pankaaj Maalde will prepare a plan for him.

Existing financial status

Rangachari is 41 and a senior info-tech manager living in Chennai with his wife, Vidhyalakshmi, who is 35 and a homemaker. The couple has two children—Sreeram, 10, and Sreenidhi, 6. Rangachari’s 72-year-old father also lives with them and is dependent on him. The family lives on rent, but has three properties worth Rs 2.02 crore. One of these provides a rent of Rs 18,000 a month, while another has been bought through a loan of Rs 25 lakh, which results in an EMI of Rs 26,500. The couple has also taken a personal loan worth Rs 2.5 lakh, for which they are paying an EMI of Rs 5,750.

Rangachari draws a monthly salary of Rs 1.25 lakh, and combined with the rental earning, the total income comes to Rs 1.43 lakh. As for their expenses, Rs 35,000 goes as household expenses, which includes a rent of Rs 15,000. Besides this, they dole out Rs 10,000 for insurance premium, Rs 15,000 for children’s education, and Rs 22,000 for Rangachari’s ailing father’s medical expenses. The loan EMIs take up another Rs 32,250. This leaves them with Rs 28,750, of which Rs 28,000 is being currently invested. "I want to know if my actual and planned investments are correct and whether I have chosen good mutual funds," says Rangachari.

Maalde will analyse these investments and suggest changes to meet the goals. The family’s targets include building a contingency corpus, saving for their children’s education and wedding, and for their own retirement. Maalde begins by assessing the family’s insurance portfolio.

Insurance portfolio

Rangachari has shown a high degree of awareness when it comes to insurance and has bought adequate life and health covers.

He currently has an online term plan worth Rs 1 crore. Besides this, he has two Ulips, for which he is paying a high premium but should consider reviewing these after the lock-in period of five years. He is advised not to buy any more insurance. As his wife doesn’t earn, she doesn’t require any life insurance.

As for health insurance, his company provides a cover of Rs 10 lakh and he also has an independent family floater plan of Rs 5 lakh. So he is adequately covered and doesn’t need any more medical insurance. Rangachari also has an accident disability insurance of Rs 20 lakh, which is again adequate. He should, however, consider buying a critical illness plan as and when his cash flow improves.

Road map for the future

Before preparing a plan to achieve the goals, Maalde suggests that Rangachari repay both his loans, as it will free up Rs 32,250 for investment.

He can do this by reducing his real estate portfolio and selling one of his properties worth Rs 32 lakh. It will take away his rental income, but help repay both the loans. It will also leave him with enough funds to form a contingency corpus.

He needs to build an emergency corpus equal to six months’ expenses, which will amount to Rs 4.9 lakh. It can be formed by allocating his fixed deposit worth Rs 15,000 and Rs 4.5 lakh that he will be left with after the sale of property. This should suffice for contingencies.

Now Rangachari can start planning for the other goals, starting with his children’s education. For his son’s education expenses in eight years, he has estimated a need of Rs 18.5 lakh. To accumulate this, he should allocate both his Ulips and review after five years.

Simultaneously, he needs to start an SIP of Rs 5,500 in a balanced fund to achieve the amount in the given period. For his daughter’s higher studies, Rangachari wants Rs 25 lakh in 12 years.

To get this sum, he is again advised to allocate one of his Ulips to the goal and, additionally, start an SIP of Rs 2,500 in an equity diversified fund. This will help him build the required corpus.

Next are the goals of his children’s wedding, for which he will require Rs 16 lakh and Rs 86 lakh in 15 and 19 years, respectively, for Sreeram and Sreenidhi.

Maalde has not assigned any existing resource for these goals.

To achieve the former, Rangachari will have to start an SIP of Rs 3,000 in an equity fund, while for the latter, he will have to start investing Rs 7,000 in an equity fund and Rs 2,000 in a gold fund via SIPs.

This should ensure the amassing of required amount in the specified period.

Finally, Rangachari is left with the goal of building his retirement kitty, for which he shall require Rs 4 crore in 19 years, assuming an inflation rate of 8%.

For this, Maalde has assigned the EPF and PPF funds, which are likely to yield Rs 1.52 crore in the given time.

For the remaining amount, Rangachari will have to start a fresh investment of Rs 23,000 a month. He needs to begin an SIP of Rs 18,000 in an equity fund and another Rs 5,000 in the NPS.

These will help him amass the required amount in 19 years.

As for his PPF, he can start depositing the minimum amount of Rs 500, and continue to make contributions in the EPF account till the age of 60 years.
Pankaaj Maalde is a Certified Financial Planner