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Aasif & Hena need to tweak their investing strategies

Aasif & Hena have enough surplus to take care of future needs. All they have to do is tweak their investing strategy for meeting all goals, says SURESH SADAGOPAN, Certified Financial Planner

  • Delhi,  August 22, 2016  
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Aasif, 36, is a research analyst with Escorts Ltd. He currently lives in New Delhi with wife Hena Zarreen and a one-year-old son, Md. Arzan. Hena is a medical writer with Kinapse in Gurgaon. The couple is planning to have a second child after two years.

Aasif and Hena have quite a few medium- and long-term goals. They are looking to buy a house next year, in 2017/18, worth `85 lakh. Arzan's formal education will start from 2018/19. They also want to have `10 lakh in present terms for Arzan's marriage. They will need the same amount for the second child too. They want to retire at the age of 50, in 2030 (Aasif) and 2032 (Hena), respectively. Therefore, it is crucial that they plan well for a financially stable life after retirement. It is also important that they have no financial liabilities then. The family also wishes to accumulate a fund to explore the world in 2020, which will cost them `20 lakh in present terms.

Existing Scenario

Assets and Liabilities

They have equity investments of `50 lakh. The other savings are cash in hand and cash at bank of `6 lakh. Their provident fund savings total about `3 lakh. One good thing about their finances is that they do not have a huge liability like a personal loan, a home loan or a vehicle loan.

Insurance portfolio

We calculated the life insurance requirement of Aasif on expense replacement and needs fulfilment parameters. After taking into account expenses, future goals, rental income, current insurance cover of Rs `5 lakh and Hena's income, we found that no further insurance is required for him. But Aasif is paying `70,000 per annum for a cover of just `5 lakh. The policy needs to be examined closely and surrendered if necessary. Hena also does not need life insurance. Her employer provides a medical cover. They haven't opted for home/personal accidental policy.

Cash flows

Aasif's net take-home salary is `73,000 per month. Hena's is `52,000. They're paying a rent of `18,000 per month for their current house. They also earn `65,000 per month from a parental property. Their total monthly outgo, including rent, is up to `60,000; other annual outgoes total around `2.40 lakh. The total annual premium for all the policies is `70,000. Family expenses are well within reasonable limits, though they are expected to rise after the second child and when they take a home loan. The family is expected to generate a surplus of approximately `12 lakh this financial year.

Asset Allocation

More than 80 per cent of Aasif's net worth is in equity. As some major goals are due in the next three years, and equity investments are considered less safe in the short run, it is important that the family channelises the present investments and future surplus in debt instruments to meet near-term goals without hassles.

Feasibility Study

A feasibility study done by taking into account the current assets and investments along with the yearly surplus (yearly income over expenses minus insurance) till retirement, and plugging the goals till the younger spouse turns 80, found that they will be able to achieve their goals smoothly. The study was done assuming regular salary increments until retirement. It was also assumed that the family expenses will fall after retirement. Medical insurance and car insurance premiums were taken into consideration till the younger spouse turns 80. It was assumed that they would change their car every seven years (till Aasif's retirement).

The Road Map


Aasif's current life cover is sufficient. He may have to buy additional life insurance when he takes a home loan. Hena's employer provides medical insurance that covers current expenses. But employer insurance will be there only till she is employed with the same company. Buying a policy at later age will mean paying a higher premium and going through medical tests. Therefore, we suggest that they buy health cover for family members for sum insured of `5,00,000 each. We also suggest that they buy a super top-up policy from the same insurer. The total premium will be around `35,000 per annum.


To meet the liquidity needs in case of a job loss/contingency, we suggest that Aasif keep aside `3 lakh in a bank or liquid mutual funds. This amount will cover average monthly cash outflows and help in an emergency.

Application of Funds

We have to create an investment roadmap for the family that will set it up well for the years to come. Its approximate average monthly surplus is `80,000, out of which `60,000 can be channelised into debt mutual fund systematic investment plans, or SIPs, for goals - such as world tour and car change - that are due in the next few years. The equity portfolio can be pruned to `30 lakh from `50 lakh to make down payment for the home they intend to buy. This amount of `20 lakh may be invested in ultra short-term/short-term debt schemes for now. A loan of `65 lakh for 20 years @ 9.50 per cent will mean an EMI outgo of around `7.30 lakh per annum. The balance `20,000 per month surplus can be invested in equity mutual funds.

The cash in hand will provide a liquidity margin of `3 lakh and cash in bank can be invested in an equity arbitrage fund to finance Arzan's first-year education as well as birth-related expenses of about `2 lakh for the second child after two years. Gains from investments in equity arbitrage funds are tax-free after a year. These funds give returns similar to that provided by debt mutual funds.

The yearly surplus can fund all other goals as and when they come up provided the couple invests judiciously after consulting an advisor.

Tax Planning

To take the benefits of Section 80C, Aasif and Hena can open PPF accounts with`80,000 and `1.5 lakh respectively. From next year, home loan repayment amount (principal portion) and PPF contributions will help the family save tax under 80C. The medical premium payment on policies suggested will help the couple take Section 80D benefits up to `25,000 per annum.

The plan assumes that the dual income will continue till retirement. You are advised to review the plan and rebalance your portfolio periodically, preferably every year.

Hena's employer provides medical cover, but it will be there only as long as she is employed with the same company