Jhanvi has studied Corporate Law and works in the legal and compliance department of a technology firm in Bengaluru. She is 36 and has a daughter aged 9.

Jhanvi is single and adopted a girl child five years back.

She has prioritised her goals as below:

1.      Set aside funds to provide quality college education to her daughter at a current cost of ₹30 lakh.

2.      Build a retirement corpus to support her (Jhanvi’s) lifestyle from age 50, at a monthly expense of ₹60,000 at current cost.

3.      To ensure her house property in Bengaluru and other assets get passed on to her daughter in the most appropriate manner

4.      Explore the architectural wonders across the world if she can afford the travel

Jhanvi wants to invest in financial assets and has a fair knowledge of the same. She has accumulated savings and investments of around ₹70 lakh and carriesno liability on her books. Her income is ₹1.6 lakh per month. She can commit monthly ₹60,000 towards her long-term goals in addition to ₹19,000 per month consolidated contribution to her EPF. Her current allocation to equity is 50 per cent of her total portfolio and she is keen to continue the same.

Review and recommendations

  Jhanvi’s systematic approach to her goals and her consistent contribution to her portfolio are commendable. Here are the steps suggested for her:

1. She was advised to maintain the ratio of 50:50 with her contribution to Debt: Equity investments. This will increase her equity allocation to 60-62 per cent at her retirement if the portfolio is not rebalanced at regular intervals.

 2. She agreed to save her future income in a ratio to balance her portfolio to the comfortable level. Any increase in her PF contribution will also help her manage the debt portion of her portfolio efficiently.

 3. She was advised to invest ₹20,500 per month in a combination of fixed deposits and fixed income mutual funds at an expected return of 7 per cent compounded annually. She understands this allocation may not be tax efficient. Liquidity, ease of management and her understanding of the products are key to her choosing this option

4. Her equity portfolio of ₹35 lakh was reviewed and necessary changes were suggested to suit her risk appetite. An additional monthly contribution of ₹39,500 was recommended to be added to the same portfolio.

5. She needs to withdraw ₹77.80 lakh for her daughter’s education, current cost adjusted for 10 per cent inflation, in the next 10 years. This will be withdrawn equally from debt and equity portfolio. Hence, it was advised not to choose PPF or NPS as part of this portfolio.

6. She was also advised not to withdraw from her EPF after 10 years as EPF provides highest tax efficient compounded rate in fixed income space.

7.  After withdrawing ₹77.80 lakh in the tenth year, continuing the investments for the next 5 years would ensure her investment portfolio reaches ₹5.56 crore. At this point, her equity allocation would be 62 per cent and the balance in fixed income investments.

8. If she decides to quit her employment, she can lead a comfortable lifestyle with an expected retirement income of ₹20.25 lakh per annum adjusted for inflation at 6 per cent per annum for the next 40 years at an expected rate of 8 per cent. This is equivalent to ₹61,000 monthly expenses at current cost, at an inflation of 7 per cent for 15 years.

9.  With two of her major goals in her pocket with this core portfolio, she is willing to explore other avenues to save and invest for her travel goals with her future income growth.

10.  Jhanvi was also advised to opt for life insurance cover for a sum assured of ₹1 crore through term insurance and health cover for sum insured of ₹5 lakh and a super top-up cover for sum insured of ₹50 lakh as family floater policy.

11.  She was directed to write a simple will and form a testamentary trust with her daughter as sole beneficiary. This structure, with the right executor and trustees, will reduce her anxiety over securing her daughter’s financial needs in case of any unfortunate event.

Understanding how a financial instrument works is helpful while selecting a product. Managing personal finance does not end with the selection of products. Most of the errors are committed in haste due to fear and greed. A well-drafted financial plan will aid the individual to get the right perspective about prioritisation of the goals and suitability of the products. Regularly reviewing the financial plan helps avoid mistakes in the investment journey. A ship needs an experienced captain till it reaches the destination, similarly, a financial plan must be carried out with the help of experts.

The author is a SEBI-registered Individual Investment Adviser. The article is provided only for educational purposes

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