The right exposure to various asset classes and an early start will help the Tiwaris reach their

financial goals If you are in your 30s and still haven't identified yourfinancial goals, be prepared for roadblocks. For one, you may not be able to amass the corpus you require if you don't have a time horizon in place. So, it's a good thing that the Tiwaris have sought professional advice at the right time. Since they have more than 27 years left for retirement, the financial adviser can help them identify their goals and lay out a plan so that they can start investing and allocating in the right manner. Om Prakash Tiwari, a 33-year-old CRPF employee, lives with his wife Deepti, 28, and son Devansh, 2, in Raipur. Om brings in a monthly income of Rs 45,000, of which Rs 13,000 goes out as household expenses. The couple also invests Rs 5,500 a month through SIPs in 10 mutual funds, and pays aninsurance premium of Rs 1,019 a month. They also bought a piece of land in Raipur last year, and as per the arrangement with the seller, they are paying him in monthly instalments of Rs 12,750, which will end next year. This leaves them with a surplus of Rs 7,731 a month. This is not quite enough for investing for all their goals, which include amassing funds for a contingency fund, buying a house, their son's education, and their own retirement. Hence, the Tiwaris need to use it optimally to ensure greater financial stability. To start with, the family must address its insurance needs since it has been caught short on both life and health insurance front. Currently, Om has three insurance policies, which give him a collective cover of only Rs 2.5 lakh for a monthly premium of Rs 1,019. The Tiwaris need to understand that while financial planning and investments are necessary, they can be in a soup in case of a financial emergency. Pankaaj Maalde of Apnapaisa.com suggests Om immediately buy an online term plan of Rs 60 lakh for 25 years, and this will cost Rs 6,500 per annum.

The couple also depends solely on the cover provided by Om's employers for health insurance. According to Maalde, this cover will end when Om retires and buying a fresh one after the age of 60 will be difficult. So, he recommends an individual cover of Rs 3 lakh for each of the three family members. They must also take a top up cover of Rs 5 lakh. This will cost the couple Rs 13,000 per annum. Besides, they should buy critical illness and disability covers of Rs 25 lakh each, which will cost them Rs 10,200 per annum.

The couple also needs to set up a contingency fund for emergencies, which should be equivalent to three months' expenses. The couple has a cash balance of Rs 1.2 lakh, which should be invested in a liquid fund for this goal. The next goal for the Tiwaris is to buy a house worth Rs 25 lakh in Raipur by next year. For this, they can sell the land that they bought last year and which is currently valued at Rs 6 lakh. This can be used to make the down payment for the house. As for the remaining amount, the couple can take a home loan. Considering a tenure of 25 years and an interest rate of 10%, they will need to pay Rs 18,000 per month as EMI from next year. Since their EMI of Rs 12,750 will end next year, their surplus will rise to Rs 20,481, which can be used to fund the EMI, and the deficit of Rs 1,488 can be made up with the increase in salary. The couple also wants to save Rs 34 lakh after 16 years for their son's education. For this goal, they can allocate their existing investments in DSP Blackrock Equity fund and ICICIBSE -0.13 % Pru Focused Bluechip fund. From the current monthly investment of Rs 5,500 in SIPs, they need to allocate Rs 4,000 per month for this goal. Of this investment amount, they are advised to continue with the SIPs of Rs 2,000 in ICICI Pru Focused Bluechip, while the remaining SIPs worth Rs 2,000, which are being invested in DSP BlackRock Equity, should be

switched

to

Reliance

Equity

Opportunity

for

getting

better

returns.

The couple's investment in mutual funds will also reap rich rewards for their most important goalretirement. They want to save Rs 4.6 crore for their retirement after 27 years. Of this, Rs 1.86 crore will be contributed by the monthly contribution of Rs 8,500 (including employer's portion) to the EPF. Another Rs 1.72 crore will come from their investment inHDFCBSE -0.24 % Equity fund and LIC proceeds of Rs 5 lakh, which shall, in turn, be invested in equity funds. The current portfolio with 10 mutual funds is not desirable and even the most diligent investor will find it difficult to track them. Om explains how he ended up with so many funds. "As and when I get some positive news on a fund, I try investing in it." However, the Tiwaris should now try to prune the folio to 3-4 funds. Since they have eight HDFC funds, they should consolidate all their existing investments in HDFC Equity fund. This should be done after all the existing investments have completed a year in order to avoid the exit loads. For the shortfall of Rs 92 lakh, the couple needs to allocate Rs 1,500 of their SIPs for the goal and start investing another Rs 1,000 per month in an equity mutual fund.

(Financial plan by Pankaaj Maalde, CFP, www.apnapaisa.com)