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POSTED BY ON January 13, 2011 4:24 pm COMMENTS (3)
Hi,
My age is 31, married, no kids, dependent mother staying with me.
Income : 70k / month
Home Loan : 22K / month, 20 years remaining
Personal Loan : 6000 / month (18 months remaining, @16%), by pre-paying I will just save 4500// in all.
Liquid cash for emergencies : 60K
FDs : 1.5 Lac
PF contribution (self + company) = 6K/month
Insurance cover = 20 Lacs, LIC , + 25 Lac Term insurance, avg. premium/month = 3500/Month
Monthly expenses : 25K
Total expenses – 22K HomeLoan – 6000K Personal Loan – 25K Expensed – 3500 Insurance = 56500/month.
Amount remaining : 70,000 – 56,500 = 13500/month
I will probably work till age of 55, i.e. 24 years from now.
I searched through forums, and found many suggestions from Mr. Ramesh and
Please suggest me where should I invest my money? I want to save for my retirement. I was planning to invest 5000/month in MF equity SIP, 3500 bank recurring, 5000 Debts. Please suggest.
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Yep,
LIC endowment policy is to be calculated as debt (I would say 0.75 debt). Why? If I get 8% on a normal debt instrument over a long term, I would say LIC will provide about 6% over long term (if it is not a guaranteed return product). So calculate it accordingly. 🙂
Personal Loan. A 5% pre-penalty almost means that you cannot fore-close it. But please go through the documents again. Usually, the prepayment charges decrease over time like 4% in first 6 months, 3% in next 1 year and 2% thereafter. something like that and please take an appropriate decision. I agree with your present calculations.
current E/d = 0:100. Future E/d 60-70:20-40 is also perfect. But always remember, this E:D is about the total portfolio and not the present or future investments.
Do not calculate the emergency fund in the portfolio. Keep it separate.
So you should be investing more / almost completely in equity instruments till you get your ratio correct! If you invest 13500 per month, your E/D will be 2-5:95-98 in first few months/years and gradually increase.
Also read this, http://www.subramoney.com/2011/01/which-pension-plan-to-buy-2/
http://www.tipblog.in/opinion/learning-points-for-a-newbie-investor/
All equity and hybrid-equity funds, including ELSS, have ZERO tax after holding them for 1 year or more. So, they are the best tax-savers if you invest for long term.
Regarding the MF which you should choose. That requires an entire new writeup. Though I have mentioned quite a few times. So just go through the forum about the recommendations and then we can proceed from there, if you do not understand or are unclear. 🙂
Ramesh
Hi Ramesh,
Thanks for prompt response 🙂
First of all, I messed up few (no many things) in stating insurance cover.
1)Endowment policies insurance cover : Rs. 7,25,000/- only, in case of accidental health, its Rs. 9,25,000/-. Survival benefits, lumsum amount approx. Rs. 15,00,000
2)Term Insurance-1 : Rs. 25,00,000/-
3)Term Insurance-2 : Linked with HomeLoan
1)PF : 6000/month (Debts)
LIC Endowment Premiums : 2500/month (Debts ?)
Equities : None,
Current E/D ration 0:100
2)I want to aim for for E/D ration of 60/40 or 70:30 (8500/- in Debts)
3)Personal Loan, finer details: EMI 5668*18=102024, principal remaining = 91,000. Penaly 5% , if I forcelcose I need to pay, Rs. 95550. I save 1,02,024-95,500 = 6500 in 18 months, i.e. 360/month. Not sure if its worth closing it. (I can use FD amount for emergencies)
Thanks for raising alarm for insurance cover, I need another insurance cover of 25,00,000/- ?? Please comment.
Coming back to equities, If I invest 13,000/month savings into equities
E=13,000
D=8,500
ratio would be 60:40
If this looks ok, I need to know type of MF to invest in, the time period, tax implications port-return. As far as I know, all equity returns MFs are tax free ? is it correct ?
what is best eay to save port-return taxes?
Many thanks any advance.
You have provided a nice comprehensive information about your cash flow.
Please go through my comments which I have posted in
http://localhost/jagoforum2/portfolio-re-balancing/995/
My suggestions:
1. On that basis, calculate your current equity:debt ratio.
2. Think about the equity:debt ratio which you should aim for.
3. Include PF contribution to your debt contribution.
4. Clarify your LIC policy. Is it an endowment policy / Ulip / term insurance? Is the term insurance policy taken as a collateral for your home loan. Then you can just keep it as a collateral for that liability. Re-evaluate your total insurance requirements.
5. How much is the pre-payment penalty for your personal loan? A 16% personal loan is very expensive and considering the long duration of 16 months left (=16*6000=96000). You should prepay it using money from the FD (which will only earn 7-8% max).
We can continue this discussion after this thought process. 🙂
Ramesh