Do you have mutual fund and personal finance-related queries?
Please ask your questions HERE and rediffGURU Janak Patel, a certified financial planner accredited by the Financial Planning Standards Board, India, and CEO and founder of InfiniumWealth, will answer them.
Besra: My gross salary is Rs 44,000. After deducting Rs 4,000 for PF, my net salary is Rs 40,000. I have a Bajaj loan of Rs 4,80,000 with an EMI of Rs 12,000. I also have other app loans and credit card debt totaling Rs 1,60,000 with an EMI of Rs 20,000. How can I save? Please suggest.
With so many loans it is difficult to save till you finish paying back the loans. So pay off the loans and as you finish one loan save that EMI amount every month.
You can talk to your bank (where you have account receiving salary) and see if they can help you consolidate these loans at a better interest rate. That way you can reduce some burden and save on interest.
Do not spend more than you can repay so that if you repay the loans on time and finish them that will be best thing for now.
Once all loan EMIs are paid, then start saving same amount every month. You can do SIP into Mutual funds.
Anonymous: Hello Sir, me and my wife planning to buy apartment for 55 lakhs and down payment is 10 lakhs remaining we are going for a loan (44 lakhs) and tenure is 24 years. We have no backup money. Our total monthly income is 180000/- and no debts. Is this a good idea?
Buying a house is one of the big decisions of life as it provides you with security and ownership of an asset but when you take a loan it demands your commitment towards EMI payments.
In your case, for a loan of 44 lakhs for a duration of 24 years if I assume interest rate of 8%, the EMI is approx. 35000.
This works out to under 20% of your monthly income.
This is a good ratio for EMI payment compared to your monthly income.
Typically we advise to have monthly expenses not more than 40% of your monthly income and EMIs of not more than 40% of your monthly income. This will ensure you have a saving/investment potential of at least 20% of monthly income.
You are well placed towards EMI payments and if your monthly expenses are well managed, your saving/investment should help build a good corpus for other/future goals.
Anonymous: I am 40 years old teacher, having 40 lakhs in FD and 2 lakhs in NSC, no debt and having property around 70 lakhs (Father’s shop). No liability as I am single child of my parents. I am financially stable or I need to accumulate wealth?
Financial stability needs to be defined for each individual based on their own preferences and perceptions.
You are a teacher and I assume you will continue your profession until retirement, this gives you opportunity to earn and save for future.
Your current investments are in a fixed income instruments which have the potential to only meet inflation needs for that amount. That means your money, though increasing over time, will be having same purchasing power as it is today.
The property value in the future is a bit difficult to estimate as it depends on many uncontrollable factors.
Hence we cannot determine if these amounts in the future are going to be able to meet your requirements without understanding your goals.
The approach you should follow is to look at what are your goals/requirements in life — during your working life and after retirement. This will require analysis of your current expenses and future goals to arrive at a corpus number.
A CFP can help you understand, plan and achieve this with a holistic financial plan. You will be provided with options and alternatives that are available and based on your profile/preferences, you will know what and how it can be achieved.
I recommend you take guidance form a CFP towards a holistic financial plan.
LAKKARAJUSRINIVASA: I am going to retire and get 1 cr. I have a house to stay and no other investments. how to plan my money? i live with my wife.
Retirement is a long period of time of approx. 20 years. During this period as you may not have any income, the corpus you have needs to fulfill your monthly expenses.
The plan of utilising your 1 crore corpus for retirement plan depends on multiple factors — monthly expenses, risk profile and other requirements.
For now I will assume, your risk as moderate and there are no other requirements.
So here’s what you need to do (assuming monthly expenses of 60K).
1. Calculate your expenses (monthly/annually) e.g. @50k per month expenses, annual expenses = 6 lakhs.
2. Calculate you annual expenses for the next 4 years (you can use inflation e.g. 6% increase each year). e.g. Year 2 expenses is 6*1.06 = 6.36L, Yr 3 = 6.74L, Y4 = 7.15L, Y5 = 7.57L.
3. Calculate annual expenses for the remaining years also in same manner e.g. Y6 = 8.03L, etc.
Divide your Corpus into 3 buckets.
Bucket 1: Your savings account: Keep 1 year of expenses in it to withdraw for monthly expenses.
Bucket 2: Fixed Deposits: Keep next 4 years expenses in FDs that will earn same as rate of inflation i.e. 6%. Ensure you have FDs maturing each year for the annual expenses calculated above. Match maturity amount with calculated expenses above. So a total of 24L will be invested FDs, 6L for every year’s expenses.
Bucket 3: Hybrid Mutual funds: Keep the remaining amount e.g. 1 Cr – 30L = 70 lakhs in a Hybrid Mutual fund like HDFC Balance Advantage fund. These funds have a combination of Debt and Equity investments. They provide some growth to the amount you invest and also cushion the down times in the market. After 2 years, from this fund, you can plan to withdraw your annual expenses for that year e.g. Y3 (Y3 = 6.74L), and invest it in an FD with maturity of 3 years (giving you Y6 expenses = 8.03L).
Repeat this withdrawal from MF (for amount that same as that years expenses and Investment into FD for maturity of 3 years.
In this way if the MF gives a return of 10% (or above), you will have covered your annual expenses and still have a corpus of over 45L with you at the end of 20 years.
So what’s important for you to do is calculate your monthly expenses and if it matches the numbers I have assumed above, you will be fine for a comfortable retirement life. So it all depends on your monthly expenses and other factors for the plan.
You can consult a CFP for a more comprehensive retirement plan based on your requirements.
Anonymous: Hi Sir, I’m 43 years old, have 2 houses and a villa plot. And a home loan of 80 lakhs, 25 lakhs gold loan. Saving of 10 lakhs. Take home salary of 1.4 lakhs and EMI is 75k. How can I build 1 cr portfolio from scratch?
With a take home salary of 1.4 lakhs and EMI of 75k, you have 65k to manage expenses and saving if any.
Your current assets are — 2 houses and a Villa plot. Do you receive rent on at least 1 of the house that can help supplement your savings? I doubt Villa plot can generate any income. So do consider any rental income possible.
You have a Gold Loan of 25 lakhs, do reduce it using some part (50%) of the 10 lakhs in savings. Consider rest as Emergency fund.
Once you have optimised your income and reduced your outstanding loans, see how much you can really save for a long term.
Some math for the 1 Cr target you have in mind.
Assuming your investment will get return of 12%, you will need 43k per month to achieve 1Cr in 10 years. If you extend the time period to achieve it, to 15 years, then you will need 20k per month.
So be realistic and plan for a long period to contribute to your goal of 1 Cr. As I don’t know the loan duration, I cannot include the EMI amount toward savings post loan completion.
As I see it, many advisors can recommend a portfolio to achieve 1Cr, but most importantly, you need to be smart with accumulating assets and loans, manage income and expenses and plan your savings. You have at least 10 years to be aggressive investor before your move closer towards retirement, so think Equity.
- You can ask rediffGURU Janak Patel your questions HERE.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.