I am 38 years old; my take-home salary is approximately Rs 2 lakh a month. My monthly expenditure is Rs 52,000 inclusive of my rent. My current EMI towards my plot investment is Rs 25,126 and Pre-EMI Rs 68,633. I wish to retain a monthly surplus of Rs 15,000 before my investment from hereon. My dependents are my wife and twin daughters aged 5.

I invest Rs 45000 in mutual funds though SIPs and Rs 7000 in Gold ETF.

Liabilities: Home loan of Rs 76.5 lakh with a tenure of 20 years. My EMI will be Rs 78,962 from February 2012 and I will have possession of the same in 2013 .My outstanding in residential plot is Rs 11.7 lakh and the balance tenure is five years.

Investments: My current accumulation in equities and MFs is Rs 10 lakh each . I have fixed deposits for Rs 8 lakh out of which I have earmarked Rs 3 lakh to meet emergency expenses. I own two plots currently valued at Rs 52 lakhs and 15 lakhs.

I have money-back policy for Rs 15 lakh maturing in 2022 with annual premium of Rs 25,000. I have a term insurance for Rs 65 lakh and my employer has taken term cover for Rs 50 lakh. I have group medical for Rs 4 lakh and Rs 3 lakh floater policy. In 2012, I like to liquidate Rs 17 lakh from my equity investment(including MFs) along with my annual (employer given) bonus of Rs 3 lakh to pre- pay Rs 20 lakh home loan. Is it the right strategy?

I have to reduce monthly investments in mutual funds to cater to EMI from March 2012 onwards. Please suggest an alternate strategy. For my daughters' higher education I may require Rs 15 lakh each at today's value in 2022 and for their marriage similar amount in 2030.

At retirement I need a corpus of Rs 2 crore to meet my expenses. My EPF balance is Rs 10 lakh and employee and employer contribution is Rs 21000 per month. Do tell me how much I need to save.

In 2013 I wish to travel aboard with my family for which I may require Rs 10 lakh.

—R Mishra

Solutions: For successful wealth creation, budgeting is important. When you create huge liability in the process of building assets, you should focus on your spending, savings and should have plans to close liabilities. Going by your current portfolio and your focus on debt reflects your financial discipline. With your current earnings and savings most of your goals are achievable without taking higher risk. However, your asset allocation needs focus and it should be more diversified. It is not uncommon to see a portfolio that is overweight on real estate compared to debt and equity. However, henceforth, we suggest you focus on asset allocation to meet all your goals. Regarding pre-payment of home loan it makes sense to reduce your liability, but wait for market recovery to dilute your equity holdings.

Education: The higher education estimation of of Rs 15 lakh a child will be Rs 31.5 lakh if inflated at seven per cent for next 12 years. To meet the target of Rs 63 lakh in next 144 months you ought to save a sum of Rs 19,790 a month and it should earn a return of 12 per cent. Since the outgo for higher education is going to happen at intervals you can consider higher allocation say 60 per cent to equity to reach the goal.

Marriage: In marriage expenses, sizable amount is accounted for by gold. During the process of asset allocation, if individuals identify the quantum required at the time of marriage, it will help them to have proper asset allocation.

The Rs 15 lakh at current value will be Rs 54 lakh in 2030 if inflated at 7 per cent. To reach the target of Rs 1.08 crore for both the children you need to save monthly, a sum of Rs 12,500 for next 228 months and it should earn a return of 12 per cent, from the asset allocation of debt, equity and gold.

Retirement: Your requirement of Rs 2 crore at retirement can be easily achieved provided your EPF contribution and that of your employer's is continued for the next 20 years and it earns an interest of 8.5 per cent. If your EPF contribution grows at the rate of 5 per cent annually, the accumulated value including your balance will be Rs 3.12 crore.

Foreign Tour: To reach your vacation corpus of Rs 10 lakh in next two years you need to save a sum of Rs 37,800 per month and it should earn an interest of 10 per cent. Being a short-term goal it is better to invest in recurring deposits in a bank. After keeping a provision of Rs 15,000 in monthly surplus hereon your investable surplus will come down to Rs 42,000.

Since your children are young you can postpone your education and marriage investment by two years and by doing so your contribution for education will increase from Rs 9,895 to Rs 13,700. Similarly for marriage contribution likely to move up from Rs 6,250 to Rs 8,200.If you move earlier to your new house, rent paid can be saved towards meeting these goals.

Home loan: As long as you don't take possession, you can deduct only 1/5th of the interest paid for the relevant assessment year. Once you take possession of the flat you are eligible for the principal and interest paid. For instance for a loan of Rs 76.5 lakh, for the first year you may end up paying interest of Rs 8.35 lakh. Once you get possession if are open to let out your house, entire interest paid will be allowed as deduction from your gross income and it will bring down your tax liability by Rs 3 lakh.

Term insurance: Considering all your goals you need to take protection cover for Rs 3 crore. Since you are already covered for Rs 1.3 crore, do take cover for Rs 1.7 crore. The premium outgo will be Rs 25,000 if you buy online. If you wish to reduce your premium outgo for the Rs 80 lakh cover buy term cover online as it will bring down your premium outgo by more than 40 per cent.

Send your queries to >financialplanning@thehindu.co.in

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