I am 28 years of old and got married 6 months ago. Current financial status 1) Monthly Salary 43k, 2) Monthly Expenditure 20k, 3) Wife searching job, 4) I am alone child and parents still earning (will retire in 5-7yrs) Mother eligible for govt. pension, 5) no home loan currently, 6) Family health cover of 10lac (apart from my company's), 7) All my LIC and other insurance have cover of 15 lac. My SIP's 1) 1k UTI Retirement Benefit Pension Plan (since Dec. 2010), 2) 1k UTI ULIP (since Dec. 2010), 3) 2k ICICI Prudential Blue Chip (since Apr. 14) 4) 5k Reliance ELSS (5k Since Jan. 15), 5) 7k Reliance Money Manager (5k since Dec. 12, incremented by 2k from Sep 15), 6) 2k LIC Saving Fund (since Sep. 13), LIC insurance premium auto deducted from here, 7) Lump sum 1.15 lac in DSP Money Manager STP 2k weekly to DSP Micro cap (Will increase amount annually as I earn more and my wife starts job) Apart from this: 1) EPF As part of salary, 2. PPF 1 lac current total (I add as per tax needs) Old stopped SIP' (no redemption yet). 1) 1k L&T Opportunity Fund (Dec. 10 - Jan 14), 2) 1k HDFC Top 200 (May 11 - May 15). I have no urgent need of these yet and return is on 15+ side Goals 1) Early Retirement at 56 years (required 3cr.), 2. A car in 1yr (required 5-6lac.), 3. Child education after 25-27 years (required 40lac), 4) A small investment home in 5yrs (7-10lac for down payment) to help tax and earn rent, 5) A big fat family vacation (once every 3yrs. required 2 lac), 6) A STP to my parents monthly 10k after 11 years, 7) 1k charity per month after 1yr Questions Are my SIP' good and enough to full fill my goals? What to do with stopped SIP' amount. Should I transfer them or let be as is?
You have a long list of goals, but we find that your investments are not well organised and invested in schemes/ products not performing well.
But first let us see how much you need to save per month to reach the various goals –
1. Retirement – This is 28 years away from now and the goal amount is 3 Crores. You need to save Rs 10,700 per month through SIPs (assuming annual returns of 12.5%)
2. Child education – You need Rs 40 Lakhs after 25 years. You need to save Rs 2,100 per month through SIPs (assuming annual returns of 12.5%).
3. House down payment – Rs 10 Lakhs after 5 years. You need to save Rs 11,500 per month through SIPs (assuming annual returns of 12.5%).
4. Car after 1 year – 6 Lakhs.
5. Income for parents through SWP of Rs 10,000 after 11 years – You need to build a corpus of Rs 13 lakhs so that you can draw Rs 10,000 as SWP for your parents (assumed withdrawal rate @9% per annum). To build a target corpus of Rs 13 Lakhs, you need to save Rs 4,500 per month through SIPs (assuming annual returns of 12.5%).
6. Expenses on family vacation Rs 2 Lakhs – After every 3 years
Now let us see, if you have sufficient savings –
You need to save Rs 28,800 (Rs 10,700 + 2,100 + 11,500 + 4,500) per month to meet the retirement, Child higher education, house down payment and corpus for parent’s retirement goals. However, the monthly savings of Rs 28,800 can be reduced to Rs 17,300 and 12,800 after 10th and 11th year post goals of house down payment and parent’s retirement corpus is achieved.
But, if we look at your current SIPs, it is only Rs 18,000 per month. Out is these, Rs 7,000 is in a money manager funds which cannot be used for achieving a long term goal.
We feel that the SIP in Reliance Money Manager Fund can be used for buying the car after 1 year and then it should be stopped.
The SIPs on other schemes like, UTI Retirement benefit and UTI ULIP should also be stopped and started in diversified equity funds in order to earn better returns.
However, you have some amount lying, post closure of SIPs, in L&T Opportunity Fund and HDFC Top 200 Fund. You should switch these funds to better performing schemes in the same AMCs. You can consider L&T India Value Fund and HDFC Midcap Opportunities Fund for this.
With regards to family vacation every 3 years, you should invest in short term bond funds as and when you have some investible surpluses. And paying Rs 1,000 to charity can be made from salary received every month.
We are not commenting on your insurance policies and the expected return on that as we do not what type of policies you have invested in. However, the total life cover is quite less at Rs 15 Lakhs. You should have minimum life cover of Rs 1 Crore (20 times your annual salary). You can buy a term plan for this purpose.
Even if we assume that after closure of Reliance Money Manager SIP after one year, you will start SIP of same amount (Rs 7,000) in a diversified equity fund and also if we assume that the other SIPs (totalling Rs 11,000) are invested in good performing equity funds, you will still have a shortfall of around 11,000 per month to achieve the various goals.
How to overcome this and still achieve the goal? The solution is - you should increase your SIPs by at least 5% every year on the base amount. For example – the 1st year monthly SIP amount is Rs 18,000, 2nd year it is 18,900, 3rd year 19,800 and 4th year 20,700 and so on. You can use this calculator to understand it better https://www.advisorkhoj.com/tools-and-calculators/sip-with-annual-increase
Hope the above helps you. Thanks for writing to Advisorkhoj!