Smart investing to meet multiple goals

Dr Rama Murthy, 46, and his wife Dr Sheela Murthy, 44, work in a private hospital, with busy daily schedules. They have a monthly family income of ₹4.5 lakh, home loan EMI of ₹65,000 and living expenses of ₹1.50 lakh, and save the rest. The Murthys have two kids – Sanjay, 13, and Roshan, 10.

Due to their busy schedules, the family is able to spend quality time together only during the weekends. They reside in a villa located close to the hospital. They purchased the villa with a bank loan that will be paid off in 22 months. The family has total bank savings of ₹71 lakh (Murthy: ₹23 lakh, Sheela: ₹35 lakh, Sanjay: ₹8 lakh and Roshan: ₹5 lakh).

The doctor couple have a credit card which they use for their monthly expenses and promptly clear before the due date. They own a large ancestral plot of land and a house in their hometown, Mysuru. Overall, their real estate is currently worth ₹2.5 crore — the villa they are occupying now is worth ₹1.5 crore and their Mysuru property, ₹1 crore.

The goals

They want to pre-close their home loan with their savings and increase their reserve to secure their sons’ education. The Murthys have an education funding requirement of ₹75 lakh for Sanjay’s higher education and ₹1 crore for Roshan’s. Along with this, their retirement target is about ₹10 crore between real estate and other assets, which could give them a monthly yield of ₹2 lakh for living expenses during the non-working phase of their lives.

Though as doctors they will continue to work past the general retirement age of 60, they plan to significantly reduce the workload once they turn 65. They would like to set aside ₹4 lakh every year for five-to-eight-day international vacations every year. In addition to all this, they would like to have a liquidity of ₹20 lakh at any point for emergencies.

We recommended that the Murthys not foreclose the loan and advised them to continue with the remaining EMI term. This will allow them to set aside the required sum for emergencies and invest the remaining sum towards achieving their goals. In addition, to achieve the goals they have outlined, they can start SIPs which will effectively help them save ₹2.25 lakh per month – ₹50,000 per month towards retirement, ₹1.5 lakh per month towards kids’ education and ₹25,000 per month towards vacation.

Investing for retirement

The Murthys can invest ₹50,000 every month in ultra-short term and diversified equity funds. They can follow an allocation of 75 per cent in fixed income and 25 per cent in equity funds with an aim to fetch an annualised return of 8-9 per cent. This investment of ₹6 lakh a year will be stable and tax efficient. Over 10 years, along with returns, it would amount to ₹95 lakh and, in 20 years, it would reach ₹3.5 crore.

We recommended to the Murthys that they increase the SIP amounts gradually as their income increases over a period of time. These savings coupled with their other assets should give them a good retirement kitty, which can be then used to generate a monthly income to fund their post-retirement life.

Funding kids’ education

Since the kids’ education is a priority and is an important time-based goal, they can opt for diversified equity funds and invest ₹1.5 lakh every month. Assuming the funding for education would be required at the age of 18 for both the sons, Sanjay would need it in five years and Roshan, eight years.

The Murthys can split the overall monthly investment in the ratio of 60 per cent and 40 per cent respectively for the two.

— The target of ₹75 lakh needed in five years for Sanjay’s education can be met with an investment of ₹90,000 per month

— The target of ₹100 lakh needed in eight years for Rohan’s education can be met with an investment of ₹60,000 per month

These automated savings for an important and specific goal can also be buffered by savings of the Murthys, if required. We have to plan for unforeseeable circumstances in the future and ensure the goals are not compromised. This can be done by maintaining a margin of safety against market volatility, the safety net here being the accumulated bank savings.

Funding vacations

An investment of ₹35,000 every month in ultra-short duration funds can help them build a corpus of ₹4 lakh plus gains every year. The Murthys can utilise these funds for a vacation of their choice every year.

Liquidity for emergencies

We recommended that of the ₹71-lakh bank balance they currently hold, ₹10 lakh be invested in bank fixed deposits and the remaining ₹61 lakh in liquid mutual funds.

Life after retirement

Based on the corpus of about ₹5 crore collected from their savings and SIP, the couple will be able to generate about ₹2 lakh per month in interest considering an annual yield of 5 per cent. This amount should easily cover their post-retirement expenses. Any additional income in case they decide to continue to work would be a bonus.

There would be many events in life and across the markets during the course of these savings and goal plans. So, we recommended that the Murthys take up a detailed review once in two or three years to assess the past outcome and future outlook while being mentally prepared to make changes, if required, to ensure that goals are met.

The writer is founder and Managing Partner, Germinate Wealth Solutions