40-year-old with Rs 1.05 crore home loan: How to achieve financial goals?

Hi, age 40 years, monthly net salary Rs 85k, married , 1 kid. Recently have constructed new house. Ground floor commercial shops, and 1st floor residential 2bhk flat were we stay. Home loan 1.05 cr with monthly EMI of 85k for next 30 years & All current savings exhausted due to new construction. Commercial shops have potential for monthly rental income of 60k to 70k.please guide on below for strategy: 1) how to close home loan in next 10 years 2) considering 60 as retirement age, need corpus of 8 cr to fund kid education, marriage and for rest of livelihood.

Ans: Hello;

1. Immediately let out the commercial shops on long lease with yearly rent hikes. This is crucial to fund your loan EMI.

Assuming this to yield rental income of 70 K per month.

You will still need to shell out 15 K for the EMI amount from your income.

2. So after deducting EMI cut from your monthly pay we are left with
70 K.
Earmarking 30 K for your regular expenses, I suggest you start a monthly SIP of 40 K in a pure equity mutual fund with yearly top-up of 11% minimum.

This may grow into a corpus of 1.47 Cr after 10 years part of which you may utilise to settle off the overdue loan amount.

3. The balance corpus left after settling the loan is expected to be around 54 L. At this stage you will need enhance monthly sip to 1.5 L with 13 % yearly top-up for the next 10 years.

4. The corpus from SIP after the next 10 years may be 6.3 Cr. The balance corpus of 54 L may grow into a sum of 1.83 Cr. Both added will give you a comprehensive corpus of 8.13 Cr, as desired. ( A modest return of 13% from pure equity mutual funds is considered).

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: Your financial landscape is promising, with substantial assets and steady income. To optimize your situation, focusing on debt repayment and effective investment restructuring is key. Additionally, working with a Certified Financial Planner (CFP) will help you achieve financial stability and early retirement.

Understanding Your Current Financial Position
You own five properties valued between Rs 6 to 8 crores, yielding Rs 1 lakh in rental income. You have an 85 lakh provident fund, a Rs 75 lakh home loan, and Rs 5 lakhs in mutual funds with a Rs 20,000 monthly SIP in equities. Additionally, you have Rs 25 lakhs in a ULIP balanced plan, no savings, and a monthly income of Rs 2 lakhs. Your term plan coverage is Rs 2 crores.

Assessing and Surrendering the ULIP
Unit-Linked Insurance Plans (ULIPs) combine insurance and investment, but they often have high charges and lower returns compared to mutual funds. Here’s why you should consider surrendering your ULIP:

High Costs: ULIPs have high premium allocation charges, policy administration charges, and fund management charges. These reduce your overall returns.

Complex Structure: ULIPs are complex products that mix insurance with investment, making it hard to evaluate performance and manage effectively.

Lower Returns: Due to high charges and insurance component, ULIPs typically offer lower returns compared to mutual funds.

Reinvesting in Mutual Funds
Surrendering your ULIP and reinvesting the proceeds in mutual funds can enhance your returns. Here’s a plan to do so:

Evaluate Exit Options: Check the surrender charges and policy terms. If possible, surrender the ULIP after the lock-in period to minimize charges.

Choose Suitable Mutual Funds: Based on your risk tolerance and financial goals, select a mix of equity, debt, and balanced mutual funds. Diversified investments can provide growth and stability.

Systematic Investment Plan (SIP): Reinvest the surrendered amount through SIPs to benefit from rupee cost averaging and reduce market timing risks.

Benefits of Working with a Certified Financial Planner (CFP)
Engaging a CFP offers tailored financial advice and strategic planning. Here’s how a CFP can help at various stages:

Initial Assessment: A CFP will evaluate your current financial position, liabilities, income, and goals. This provides a clear understanding of your financial health.

Goal Setting: They assist in defining short-term and long-term financial goals, such as debt repayment, retirement planning, and children’s education.

Investment Strategy: Based on your risk tolerance and goals, a CFP will create a diversified investment strategy. This includes selecting the right mix of mutual funds, debt instruments, and other investment options.

Tax Planning: Efficient tax planning ensures you make the most of tax-saving instruments like ELSS, PPF, and NPS. This maximizes your post-tax returns.

Debt Management: A CFP helps in devising a plan to pay off your home loan early, reducing interest outgo and freeing up cash flow for investments.

Regular Monitoring and Rebalancing: Regular reviews and portfolio rebalancing ensure your investments remain aligned with your goals and market conditions.

Retirement Planning: They provide a detailed retirement plan, estimating the required corpus, expected returns, and optimal withdrawal strategies to ensure a stable income post-retirement.

Detailed Action Plan for Financial Restructuring
1. Surrendering ULIP and Reinvesting:

Step 1: Assess the surrender value and charges.
Step 2: Complete the surrender process and receive the proceeds.
Step 3: Consult a CFP to determine the best mutual funds for reinvestment.
Step 4: Start SIPs in selected mutual funds to reinvest the ULIP proceeds.
2. Accelerating Home Loan Repayment:

Step 1: Allocate a portion of your rental income and salary towards additional loan payments.
Step 2: Consider using part of your PF to make a lump sum payment.
Step 3: Increase EMI payments to reduce the principal faster.
Step 4: Utilize any windfalls like bonuses for lump sum payments.
3. Optimizing Investments for Early Retirement:

Step 1: Diversify investments across equity, debt, and balanced mutual funds.
Step 2: Maintain an emergency fund equivalent to 6-12 months of expenses.
Step 3: Increase SIP contributions as your income grows.
Step 4: Engage a CFP for regular portfolio reviews and rebalancing.
4. Generating Stable Retirement Income:

Step 1: Use Systematic Withdrawal Plans (SWPs) from mutual funds for regular income.
Step 2: Invest in balanced funds that offer stability and moderate growth.
Step 3: Allocate a portion to debt funds and bonds for interest income.
Step 4: Consider dividend-paying stocks and funds for an additional income stream.
Step 5: Once eligible, invest in the Senior Citizen Savings Scheme (SCSS) for regular interest payments.
Regular Financial Reviews
Regular financial reviews are crucial. Schedule periodic meetings with your CFP to review your financial plan, assess performance, and make necessary adjustments. This ensures your strategy remains aligned with your goals and market conditions.

Importance of Adequate Insurance Coverage
Adequate insurance coverage is essential. Review your health and life insurance policies regularly. Ensure they provide sufficient coverage to protect against unforeseen expenses and provide financial security for your family.

Conclusion
Your financial goals are achievable with strategic planning and disciplined execution. Surrendering the ULIP and reinvesting in mutual funds, accelerating home loan repayment, and diversifying investments will enhance your financial stability. Working with a Certified Financial Planner will provide expert guidance and ensure your financial plan aligns with your goals. Regular reviews and adjustments will help you enjoy a comfortable and secure early retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in