Sumanth, aged 42, is working as Vice-President in an IT consulting firm. Niranjana, aged 40, is a music teacher in a private school and also takes music classes online to NRI students. They have a daughter and son, aged 12 and 9, respectively. They shared their cash flow and net worth.

They have the following queries.

1. They have covered most of the investment options they are aware of. Any new investments to be added to their portfolio?

2. Are they on the right track to reach their goals such as children’s education, retirement and financial freedom?

3. Are they adequately covered for any contingency?

4. What should be done to their investments as they are overwhelmed with the recent returns and thinking of moving to safety at this point?

5. Should they look at additional property to get regular income?

6. How much wealth can be created in the next 15-20 years, as Sumanth is willing to continue working for long years?

Sumanth is not able to devote adequate time to managing his portfolio, as he is occupied with his work. Niranjana is more of an artistic person and is less interested in managing finances.

Sumanth is the one making most of the financial decisions and is cautious while taking risks. He prefers stability and accepts volatility in medium term.

Recommendations

1. Sumanth has total life insurance cover of ₹5 crore excluding his employer provided life cover of 2x his annual CTC. At this moment, the family is well covered for their financial commitments and future lifestyle.

2. The family is adequately insured for medical emergencies.

3. They were advised to add property insurance for the apartment to cover the perils of fire and natural calamities.

4. They were also advised to draft a will and suitable strategies to ensure the wealth created is passed on to their minor children in case of any unfortunate events.

5. Sumanth was advised to use the car lease programme offered by his employer for the luxury car they plan to purchase instead of buying directly.

6. Sumanth was advised to opt for National Pension Scheme through his employer. Though the limit has been increased to save 14 per cent of basic, Sumanth gets the tax benefit for a maximum of 8 per cent of his basic with the higher contribution to his EPF.

7. They were advised to rebalance their MF portfolio and ULIP to suit their needs and risk appetite.

8. Sumanth may look at other investing opportunities, once the financial assets cross ₹10 crore.

9. With the committed monthly contribution, their portfolio can grow to ₹26-45 crores in the next 15-20 years.

10. If they can increase their contribution to MF to additional ₹20 lakh per annum, the portfolio may potentially grow to ₹50-70 rore in the next 15-20 years with disciplined savings.

11. It is prudent to close the housing loan systematically with bonus income in the next few years to reduce the outflow of interest.

12. Sumanth was also offered stock options form his company, which will help him have meaningful exposure to assets outside India. He was advised to diversify his risks across geography.

13. Niranjana wanted to start a music centre, which can be funded in the next four-five years with her savings.

14. Unit-linked insurance plans (ULIPs) were not suitable for their risk profile and not helping them in life cover as well. Hence a calibrated approach was chosen to reduce the exposure to the instruments in the next few years and they were advised to move to a simple and highly-regulated MF portfolio.

15. Sumanth is not keen on early retirement as he is motivated to move up the ladder in his firm’s global operations and looking forward to challenging opportunities. Niranjana is willing to support and open to the idea of moving to other countries. She is planning to increase her online music classes to keep herself engaged.

16. As an alternate plan, with the regular savings and current assets, they will be ready for basic retirement to manage their current lifestyle in the next seven years and conveniently fund the children’s education as well. This gives them the comfort of looking forward to increasing their wealth in a balanced manner.

17.  Investing in a property for regular income is not a bad idea. But they need to take a rational decision depending on the cost, location and the rental yield.

Moving out of equity market because it has scaled a new peak is not advisable. If there are pockets of investments where the returns are very very high, then a partial booking of profits was advised. Markets move between peaks and troughs, and the long-term returns are calculated considering such a volatility. Moreover, exiting at the peak is neither easy nor re-entering at lows. Hence, exiting equities completely is not advised. 

The author is a SEBI-registered Investment Adviser and can be reached at www.financialplanners.co.in