Financial Planning

I am a 47-year-old doctor. I joined a corporate hospital recently. My wife, 42, is also a doctor. We have a 13-year-old daughter. My wife’s salary is likely to increase by Rs 7,500 within the next six months.

I have booked an apartment in Pune, which will be ready for possession by March 2014, for which I need to make a down payment of Rs 6.3 lakh. I have earmarked a separate fixed deposit which will cover this payment.

What should my investment strategy be to reach all my goals?

- Arindam Bhattacharyya

For professionals such as doctors, investment strategy suggested would be based on the likely tenure of practice and expected revenue streams.

In your case, assuming that at 60 you discontinue practice, then even without making too many risky investments, you can reach most of your goals.

Although it is nice to hold immovable assets in your portfolio,it is necessary for you to build financial assets.

In your current portfolio real estate accounts for 77 per cent of the pie, while financial assets, including insurance account for only 16 per cent.

Of course, it makes sense build a real estate portfolio for retirement needs. Rental yields are like to jump from 3 per cent to 6-7 per cent provided the property price and rentals grow at 7 per cent and 5 per cent, respectively.

Such a return can be attained with financial assets as well.

Since you have not disclosed the amount needed to meet the goals, we have assumed calculations based on general conditions prevailing in the market. For education, you may need Rs 20 lakh and for marriage Rs 15 lakh, excluding jewellery. To meet education costs, earmark the fixed deposits. For the balance Rs 16.5 lakh, you need to save monthly, a sum of Rs 21,300 for the next five years and it should earn post tax return of 10 per cent.

For her marriage, the present cost of Rs 15 lakh will be Rs 33.8 lakh after 12 years, if inflation is at 7 per cent. To reach the goal, you need to save monthly, a sum of Rs 10,600 for the next 12 years. Since the goal is a long-term one, build a portfolio that can potentially generate 12 per cent returns. If you anticipate the expenses to be higher, then earmark the maturity proceeds of insurance policies.

After saving for the first two goals, you will be left with a monthly surplus of Rs 56,000. Based on your current monthly expense of Rs 20,000, at 60, you need Rs 42,100. To receive such a monthly inflow at retirement, you should have a corpus of Rs 1.49 crore and it should earn at least one per cent over and above the prevailing inflation. To build such a corpus you ought to save monthly a sum of Rs 46,700 for the next 13 years. You should be able to generate 10 per cent return on your portfolio.

If you receive rental income at retirement, it will help you meet any emergency.

Increase you health cover or buy a top-up insurance plan. Since your life cover is too low, buy a term plan for Rs 1crore.

(The author is CEO, myassetsconsolidation.com)

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