Discipline Will Be Key- Business News

Discipline Will Be Key For The Kumars:Pankaaj Maalde

The Kumars have managed their expenses well but the need is to invest their money wisely.

Sanjay Kumar, 47, from New Delhi aspires to secure the future of his children - daughter Jayshree, 14, and son Gaurav, 12. He wants best-in-class educationfor both and save enough for his daughter's wedding. To achieve his goals he, however, needs do a few things right.

Kumar is a government employee, and his wife, Mitali, 46, is a teacher. So far, they have been investing regularly in the stock market.

Kumar's monthly take-home salary is Rs64,000, while Mitali earns Rs20,000 per month. This may be adequate for the Kumar family, but they need help in managing their investible surplus in a better way. The fact that they are investing directly in the stock market can land them in trouble and, therefore, is not advisable. They should also reduce their real estate exposure - currently at 63 per cent of their total investment.

Contingency Fund

Existing investments Rs1.75 lakh in cash and savings bank deposits.

Additional investment Not necessary.

Emergencies, health or otherwise, often come unannounced and in unexpected places. It is something which no one can predict. Therefore, everyone needs to build a contingency fund equal to three months of his or her expenses. Kumar's existing savings in liquid instruments is sufficient to meet the family's emergency needs. The contingency fund should be invested in an ultra short term fund and should be earmarked only for emergencies and for nothing else.


Existing cover Rs25 lakh

Additional cover Rs40 lakh

Kumar's family does not have adequate life insurance cover. Based on his stated needs, Kumar requires an additional life cover of `40 lakh. He should buy an online pure term plan for an annual premium of Rs12,000, for 15 years. It is recommended to continue with his existing online term plan of Rs25 lakh.

Kumar is also advised to buy a Rs25 lakh critical illness insurance policy, whenever his income increases. Besides, he is also ignoring disability insurance. He would do well to buy an accident disability insurance of Rs25 lakh, which will cost him around Rs4,000, annually.

However, since he is a government employee, he benefits from the government health insurance schemes for himself and his family. All expenses are reimbursed provided treatment is undertaken in government hospitals. The facility will continue even after his retirement.

Children's Education

Existing investment Rs8 lakh in stocks

Additional investment Kumar must start a systematic investment plan (SIP) of Rs23,500 for his daughter's education. For his son's eductaion, he could transfer the proceeds of stock sale to a balanced fund.

To build a higher education corpus of Rs13.60 lakh (Rs10 lakh in today's value) for his daughter when she turns 18, Kumar must start a monthly SIP of Rs23,500 in an equity income scheme of a mutual fund, which invests a maximum of 25 per cent in equity and the balance in debt instruments for the first three years and, in the fourth year, moves the money in an arbitrage fund to get the desired corpus.

At present, he can start with the Rs20,000-per-month surplus he already has and add to the SIP amount once he starts earning a rental income of Rs8,000 (expected) from his apartment. He expects to get possession of the apartment in January 2017.

To build a higher education corpus of Rs15.85 lakh (Rs10 lakh in today's value) for his son when he turns 18 (six years hence), Kumar can sell his equity holdings and invest the Rs8 lakh in a balanced fund of a mutual fund. He need not invest more to acheive this goal.

Daughter's wedding

Existing investment Gold

Additional investment SIP of Rs22,000

To build a corpus of RS35 lakh (RS15 lakh in today's value) for his daughter's wedding when she turns 25, Kumar's existing gold investments will contribute to around Rs 7 lakh in 11 years. Therefore, after building the desired corpus for her higher education, Kumar has to start a monthly SIP of Rs22,000 in a balanced fund to achieve the desired corpus for her wedding.


Existing investment Employees' Provident Fund, house and pension.

Additional investment Not required

Finally, retirement being a vital part of everyone's life, one must not compromise on it. Kumar and his wife are planning to retire at 60. To take care of their sunset years, they will require a corpus of Rs1.83 crore. But, as a government employee, Kumar will be eligible for a monthly pension, which will be equal to 50 per cent of his last drawn salary. Besides, he could allocate his share of the proceeds from the sale of his parental property and savings in the employees'provident fund to build his retirement corpus.


Diversification is like hedging your portfolio. If you put all your eggs in one basket, you run the risk of earning low returns. By diversifying your portfolio, you make sure that other assets support your portfolio if a particular asset does not do well. There have been times when gold has not performed well for quite some time while equities gave very high returns. Keeping this in mind Kumar needs to reduce his exposure to real estate, which is currently too high at 63 per cent of his total investments. It is, therefore, advised that he should review his real estate investment periodically. Moreover, direct investment in stock markets requires in-depth research and analysis. He is, therefore, advised to invest in mutual funds instead of directly investing in equities.

Tax Planning

When it comes to tax planning, Kumar's tax-saving requirements are covered by his existing contribution to the Employees' Provident Fund, home loan principal repayment and insurance premium under Section 80C of the Income Taxt Act, 1961. Besides, interest paid on home loan is tax deductible for up to Rs2 lakh under Section 24 of the Act.

Now, all that Kumar has to do is to save smart and invest safe, while reviewing his plans and rebalancing the portfolio from time to time to ensure happy times.

As told to Sarabjeet Kaur

If you need help on how to manage your money write to us for expert advice at moneytoday@intoday.com