Suggest future course of financial planning

POSTED BY Ashish Garg ON February 18, 2013 2:41 pm COMMENTS (13)

Dear Sir,

My wife and myslef, both are working and getting a net take home of Rs.1.5L per month. Our current portfolio is almost zero now as we have booked an apartment in B’lore and have just started repaying the home loan.

My age: 37 yrs

Wife: 35 yrs

Child One (4 yrs)

My current portfolio is:

Self

Life Insurance Term: Rs.1.5 Cr

Life Insurance Conventional: Rs.7.5 Lakh

ULIP: Rs.2.5 Lakh

Wife

Life Insurance Term: Rs.90 Lakh

Life Insurance Conventional: Rs.5 Lakh

ULIP: Rs.1 Lakh
Combined for both
Mediclaim Insurance: Rs. 5 lakh floater and a top plan of 15 Lakhs
One home in Navi Mumbai (loan free) currently valued at about 80 Lakh and giving us a monthly rental of Rs.15,000 at present.
RD account: Rs.3000 per month
MF: Rs.20,000
FD: Zero
Direct Equity: Zero
Since I have bought the home recently, I have utilised all my saving for paying my share for the apartment. The flat is under construction and will take another 18 months to be ready and hence I am staying in a rented house now.
Home loan balance: Rs.90 lakh and tenure 20 yrs (pre-EMI of Rs.58,000 average)
Monthly expenses 35,000 + 25000 as house rent
Savings per month about Rs.10,000 only after the above expenses.
I request if I can be suggested some good investments to earn fair return (about 10-12% per annum) so that I can repay my loan fast and also save something for my future. 

13 replies on this article “Suggest future course of financial planning”

  1. Ashish says:

    Dear Ashal / FFC

    Now that I have decided to sell my Mumbai home to get some money for my future course of action, I would require some more guidance on the plan. I have been investing in MF and direct equities in past and somehow managed to get decent (in the range of 18-20% pa) profits on my investments. Considering my current situation I am a bit undecided on the issue of should I invest in direct equities (stocks) or MFs or the planing FDs / RDs.

    Consider, I can put in about 25,000 per month for 15 months till my EMI kicks in and worst case scenario of not able to sell my flat in Mumbai. Request if you can suggest a bit of investment break up in various instruments. As for risk, I think I still can afford to put good chunk of this amount in riskier instrument, but is it advisable looking at my present situation.

    Your guidance would help.

    Regards

    1. Please list your financial goals (retirement, childs education, marriage).

      Determine how you need to save for each goal. You can use the goal planners in my site to optimize this amt or any other calculator on the web.

      The start investing in mutual funds. If your goal is 15 financial years away then you could open a PPF account and use it like a SIP.
      Don’t expect the past returns in future. If you have experience with direct equity and have the time to analyze and make calls go ahead. if not stick to mutual funds.

      Plan for your house selling and when everything works out go ahead with it.

  2. Dear Ashish, please feel free to discuss as & when you need so.

    Thanks

    Ashal

  3. Dear Ashish, let’s tackle the situation differently. I’m owner of Mumbai house & offering you the same now @ 90L Rs. w’d you like to purchase if all other things remain same in terms of rent, loan amount, ROI on home loan?

    Can you now justify to yourself to purchase this property for 90L Rs.?

    Think over it.

    Thanks

    1. Ashish says:

      Thanks Ashal and FFC,

      Needed some direction to move forward and I think it make sense to follow your advice and looking at the current market scenario, I don;t think I will find a buyer “tomorrow’ itself waiting for my apartment. So if I start the process today, hope that I will get a decent buyer to pay me what i want in next few months.

      As for the other suggestions, yes I am on my way to reduce the renal expenses. With April round the corner and salaries are expected to be revised by a ‘nominal’ percentage, I am all up for putting the increment in some fruitful investment to align my future goals of child education, his marriage and our retirement.

      Sometime you need others to look at things from a different perspective.

      Thanks once again.

      Regards,

      Ashish

  4. Dear Ashish, your reply to dear FFC, 102Cr. Rs. in next 3-5 years, which may happen or may not happen but if you are taking a high value loan, your interest outgo on it is certain for next 3-5 years.

    Think over it.

    Thanks

    Ashal

    1. Ashish says:

      Dear Ashal,

      Completely agree with you on outgoings. I have taken this high loan with high interest and have to pay in any case.

      I still feel holding on to Mumbai home for another year or two will definitely going to give better return on this property as I am sure of the infrastructural development and rising prices in this area. I have stayed in this apartment and have seen the development happening around.

      But yes considering your suggestion will give this a re-think very seriously.

      Regards,

      Ashish

  5. Dear Ashish, If we consider 6600 Rs. property tax paid by you & the society maint. your real earning from flat of Mumbai = 12500 Rs. roughly.

    So your Mumbai home’s PE ratio = 8000000 / 150000 = 55 Times

    Now do tell me, if I offer you a stock at such high PE, w’d you like to purchase or dump it?

    In simple words, your Mumbai house is not earning enough so please sell it & use the amount to pay off your loan & thus reducing the pain of high EMIs & high Interest pay out.

    Your views please.

    Thanks

    Ashal

    1. Ashish says:

      Dear Ashal,

      You are right in saying that, I have just stated the reason for holding on to this property and shall surely sell it in near future, now that I have moved to another city.

      Meanwhile, I am planning to put some amount through SIPs in MF and some in stocks, from my current monthly surplus amounts.

      Do you think this would be worthwhile?

      Regards,

      Ashish

  6. Dear Ashish, let me discuss your Mumbai house first.

    Price = 8000000 Rs.
    Earning = 15000 Rs. mly or 180000 Rs. Yly

    Who is paying the society maint. charges & property tax etc for this house?

    Thanks

    Ashal

    1. Ashish says:

      Dear Ashal,

      Rs.15,000 monthly rental, this includes society maintenance of Rs.2000. I am paying the property tax, which turns out to be about Rs.6600 per year.

      Ashish

  7. Even your pre-emi is pretty steep. You should have sold your Mumabi flat to get this Bangalore house. You could still consider this. A 80 lakh house giving only 15 K rental income seems far from optimum.

    Your are are already in the wrong side of 30s. If you invest something now with sole idea of repaying loan you will never be able to achieve your other goals. Even now I think this is going to be a difficult task.

    For example, retirement, childs education, marriage etc.

    I suggest you list your financial goals (other than prepaying loan), use a goal calculator and start investing.

    You may need to reduce your monthly rental expenses.

    Once the full emi kicks in estimate how you can save each month.
    See if you can scrounge around for assets which can be liquidated to pre-pay in chunks. You can use your bonuses for this.

    Figure our your goals and optimize the amt you need to save first
    You could use this:

    http://freefincal.wordpress.com/goal-planning/optimize-your-goal-investment-amount/

    Then only come investments.

    If you sell your Mumbai house most of your problems will be solved. Else I don’t think you can afford to retire even at 60.

    1. Ashish says:

      Dear Sirs @FFC,

      I did think about selling the Navi Mumbai house, but due to certain infrastructural development in the nearby areas (within 1 km) I decide to put the selling thought on hold for another 3-5 years. The prices in this area has significantly increased in last 2-3 years that too because of infra development so I am keeping it for some more time. Of course this is not guaranteed but still the demand for homes in Mumbai is ever rising, my gut feel is that I should keep it for 3-5 years at least.

      My pre-EMI is an average which I am considering and shall only touch once the full disbursement happens. As of now it is about 27,000.

      Rented expenses shall come down once we move to our home. But yes of course I am seriously considering your suggestion and I feel I can easily reduce it to Rs.16-18,000 per month by moving to a smaller home or a home with lesser amenities during rented house.

      As of now I can afford to save about 25,000 per month (considering avg pre-EMI of 58) and once the full EMI will start rent will stop so EMI will be taken care of and I can continue to invest 25,000 per month.

      I am hoping to sell my Mumbai home at around 1.2 Cr (if everything goes well) in next 3-5 yrs and close my home loan. Hope to increase my monthly income in coming years + the adjusted inflation.

      Regards,

      Ashish

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