Financial Planning

I am 29 and my wife is 25 . We plan to have our first child by 2014. We live in Dubai and plan to return to India by 2016. I expect my monthly salary to be Rs 80,000 at that time. My wife is running a financing business and I am planning to plough back the profits into the business for the next five years.

We paid Rs 50 lakh to our parents and hence they are independent.

In India I have not taken any insurance policy. Health cover is provided by my employer. I can take moderate risks on my investments.

— M. VijayaKumar

With limited surplus it may be quite challenging to save for all your aspirations within 2016. You may need to take a home loan to construct a property.

But as the cost of borrowing is low in Dubai, you can take a loan of Rs 15 lakh and invest here to benefit from the interest rate arbitrage.

Since you are employed there and draw salary in Dubai, you have no currency risk. Your current income in India is far less than the marginal tax slab rate and so you will have better return on investments.

Let us say your borrowing cost at three per cent in Dubai. You must deploy the loan amount in liquid funds here and use systematic transfer plan to invest in equity funds. These equity funds must earn returns of 12 per cent. So after paying the interest cost, your corpus will be at Rs 21 lakh in 2016. This can be used to buy a car.

Since your risk profile is moderate, allocate to equity, debt and gold in the ratio 50:40:10.

Construction of house

Currently in India the cost of construction will work out to Rs 1,800 per sq ft for a moderate specification. Assuming an inflation of 7 per cent, the cost after four year will be Rs 2,350. For construction of 1,500 sq ft, your outgo will be Rs 36 lakh. With other incidental expenses including furnishing, it is not likely to exceed Rs 45 lakh. Once you join work in India, opt for home loan for 80 per cent of the construction cost. If you borrow at 10 per cent for 15 years the EMI will be Rs 38,500. For the initial cost sell one of your plots.

Education

The education cost of Rs 15 lakh will be Rs 50 lakh by 2032, if inflation continues average at 7 per cent. To reach the target you need to save monthly a sum of Rs 6600 for the next 18 years.

Although you are staying outside the country you can still take life cover. Buy a term insurance policy for Rs 1.5 crore.

Since you are in early part of your career, once you return to India and based on your net worth you can plan for retirement.

(The author is CEO, Myassetsconsolidation.com)

COMMENT NOW