Family finance: Acharya needs to reduce equity risk by selling stocks and investing in mutual funds

Amit Acharya, 51, stays with his homemaker wife and two children aged 16 and 10, in Raipur. He brings in a salary of Rs 2.25 lakh a month. His portfolio includes real estate worth Rs 1.03 crore, which includes a self-occupied house and another for investment. He is also repaying a home loan of Rs 25 lakh with an EMI of Rs 35,000. His other investments include equity worth Rs 1.08 crore in the form of mutual funds and stocks, debt worth Rs 55.7 lakh in the form of EPF and PPF, and Rs 4.6 lakh in cash. His goals include building an emergency corpus, saving for children’s education and weddings, and retirement.

Portfolio

Cash flow

Financial Planner Pankaaj Maalde suggests he start by building an emergency corpus of Rs 4.77 lakh, which is equal to three months’ expenses. He can do so by allocating his cash and investing it in an ultra short-term or arbitrage fund. He should also increase this corpus to six months’ expenses at the earliest after a rise in income. Acharya wants to save for his children’s education goals, which are two and eight years away. For these, he will need Rs 57 lakh and Rs 86 lakh, respectively. To achieve the former goal, he can allocate a portion of his stocks worth Rs 50 lakh towards this goal. Maalde strongly advises him to sell stocks worth Rs 50 lakh and park the sum in a floating rate debt fund or arbitrage fund. For the latter goal, he can allocate a portion of his hybrid funds worth Rs 9.22 lakh and start an SIP of Rs 45,000 in hybrid equity funds.

How to invest for goals

For the kids’ weddings in nine and 15 years, he has estimated a need of Rs 65 lakh and Rs 96.5 lakh, respectively. For the former, he can allocate Rs 17 lakh worth of stocks and maturity proceeds of a traditional insurance plan. For the latter, he can allocate Rs 13.1 lakh worth of stocks and maturity proceeds of another traditional insurance plan. He is advised to sell his stocks and invest the amount in diversified equity funds. For retirement in nine years, Acharya will need Rs 3.5 crore, and can allocate his real estate, EPF, PPF and equity funds. He will also have to start an SIP of Rs 16,000 in a diversified equity fund.

For life insurance, he has five traditional plans and a term plan of Rs 1 crore. Maalde suggests he continue with these plans. For health, he has a Rs 5 lakh plan from his employer and another Rs 5 lakh family floater plan bought on his own. Maalde suggests he buy a Rs 10 lakh plan instead for Rs 3,167 a month. He should also pick a Rs 50 lakh accidental disability plan for Rs 500 a month.

Insurance portfolio

Financial plan by Pankaaj Maalde Certified Financial Planner

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