Hi. I am 45 old single woman with my both aged parents financially dependent on me. I am working in a private limited company and my in hand monthly income is 90k and have home loan liability of 26k per month which will be for more 14 years. I am investing 12k monthly in SIP, 50k annually in SBI retirement smart plan, 50Lakh term insurance, 8Lakh health insurance. I can invest 10k more per month immediately and another 8k more from December 2024. I want to plan for retirement, early repayment of home loan (as early as possible I want to be debt free) and at least 2 holiday trips in a year. Can you please suggest the best strategy? Thank you.

Ans: Firstly, I commend you for taking proactive steps in managing your finances. Being financially responsible for your parents while managing your own expenses is commendable. Let’s dive into creating a solid strategy for your financial goals, considering your unique situation.

Current Financial Snapshot
You earn Rs 90,000 monthly and have a home loan liability of Rs 26,000 per month for the next 14 years. You are already investing Rs 12,000 monthly in SIPs and Rs 50,000 annually in the SBI Retirement Smart Plan. Additionally, you have a term insurance cover of Rs 50 lakh and a health insurance cover of Rs 8 lakh. You can invest Rs 10,000 more per month immediately and an additional Rs 8,000 per month from December 2024.

Prioritizing Financial Goals
Retirement Planning
Early Repayment of Home Loan
Annual Holiday Trips
Let’s explore these goals one by one.

Retirement Planning
Your current retirement savings include Rs 12,000 monthly in SIPs and Rs 50,000 annually in the SBI Retirement Smart Plan. To enhance your retirement corpus, you can allocate the additional Rs 10,000 per month immediately and the extra Rs 8,000 per month from December 2024.

Power of Compounding
Mutual funds, especially equity mutual funds, can be a powerful tool due to their compounding effect over the long term. The longer your money stays invested, the more it can grow. By investing regularly, you can benefit from rupee cost averaging, which helps mitigate market volatility.

Diversification
It’s important to diversify your investments across different categories of mutual funds. Here are a few categories to consider:

Large-Cap Funds: These funds invest in well-established companies and offer stability.
Mid-Cap Funds: These funds invest in medium-sized companies with higher growth potential.
Small-Cap Funds: These funds invest in smaller companies and can offer high returns but come with higher risk.
Balanced or Hybrid Funds: These funds invest in both equity and debt instruments, providing a balance of risk and return.
Early Repayment of Home Loan
Your home loan EMI of Rs 26,000 per month is a significant commitment. Paying off this loan early can free up your finances for other goals. Here’s a strategy to consider:

Lump-Sum Payments
Whenever you receive a bonus or any unexpected income, use a portion of it for lump-sum payments towards your home loan. This can significantly reduce your principal amount and overall interest burden.

Increased EMI
From December 2024, when you can invest an additional Rs 8,000 per month, consider increasing your home loan EMI. Even a slight increase in your monthly EMI can reduce your loan tenure significantly.

Planning for Annual Holiday Trips
You mentioned wanting to take at least two holiday trips a year. This is a wonderful goal for personal rejuvenation. Here’s how you can plan for it:

Dedicated Savings
Open a separate savings account specifically for your travel goals. Deposit a fixed amount monthly into this account. Given your current income and expenses, allocating Rs 5,000 monthly can be a good start.

Short-Term Investment Options
Consider short-term mutual funds or liquid funds for this goal. These funds offer better returns than a regular savings account and are relatively liquid, making them suitable for short-term goals.

Evaluating Current Investments
SBI Retirement Smart Plan
While this plan provides some retirement benefits, it’s essential to evaluate its returns and charges. Often, traditional retirement plans come with higher charges and lower flexibility compared to mutual funds. You might want to consider shifting future contributions to more flexible and potentially higher-yielding mutual fund investments.

Term and Health Insurance
Your current term insurance cover of Rs 50 lakh is good. Ensure it’s sufficient to cover your parents' needs and any outstanding liabilities. Your health insurance cover of Rs 8 lakh is also adequate, but review it annually to ensure it meets rising healthcare costs.

Strategic Investment Allocation
Here’s a suggested allocation for your additional Rs 10,000 per month and Rs 8,000 from December 2024:

Retirement Corpus: Invest Rs 10,000 immediately in a diversified portfolio of equity mutual funds.
Home Loan Repayment: From December 2024, direct the additional Rs 8,000 towards increasing your home loan EMI or making lump-sum payments.
Holiday Savings: Allocate Rs 5,000 monthly to a dedicated travel savings account or short-term mutual funds.
Regular Review and Adjustment
It’s crucial to review your financial plan regularly. As your income grows or your financial situation changes, adjust your investments and savings accordingly. Consulting with a Certified Financial Planner (CFP) periodically can help ensure you’re on track to meet your goals.

Final Insights
Achieving a balance between long-term goals like retirement, medium-term goals like early home loan repayment, and short-term goals like annual holidays is key. By diversifying your investments, making strategic payments towards your home loan, and saving diligently for travel, you can achieve financial stability and enjoy your desired lifestyle.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in