Hello Sir, I am 44 and my wife is 41 and we are both working in the software industry and have a 10 year old daughter. We have taken home salaries of 3.6 L and 3.1 L per month respectively. At this point we have real estate worth of around 5-6 crores (2 flats and 2 plots) and rental income from one of the flats is 20k.
Our Financial assets are
PF - 1 CR, PPF - 20 L, NPS - 20 L, NPS - 20 L, Sukanya Samrithi - 10 L, Mutual funds - 50 L, Bank balance / FD's - 50 L, Shares / Options / RSU's ($80000) - ~65L, Gold (physical & Digital) - ~1.5 CR, Some Unlisted Shares - 6L, Some LIC's - 6L, Crypto - 7 L and we have 2 good Cars
InheritanceOur ancestral inheritance would be roughly 8 CR's
We have monthly investments of Mutual Fund SIP's - 1.5 L, Bank RD'S - 1.2 L, PF (Employee & Employer) - 1 L, PPF - 25000 NPS - 30000 and Sukanya Samrithi - 12500
InsuranceWe have taken sufficient term insurance and health insurance of around 1 cr apart from the corporate insurance cover
We don't have any loans or EMI's and current monthly expenses are around 1.7 L and typically take an international vacation every year. Considering the uncertainty in the corporate sector we want to achieve financial independence and invest our surplus money wisely. Please advice
Ans: You and your wife have built a strong financial foundation. Your combined monthly salaries of Rs. 6.7 lakh, along with substantial real estate holdings and financial assets, reflect good financial discipline. It’s commendable that you have no loans or EMIs and that you are investing systematically in mutual funds, PPF, NPS, Sukanya Samriddhi, and other instruments.
Your monthly expenses are around Rs. 1.7 lakh, which is manageable given your income. Additionally, you have set up term and health insurance, which protects your family in unforeseen circumstances.
Real Estate Portfolio
Your real estate portfolio of Rs. 5-6 crores is valuable, with one property generating Rs. 20,000 per month in rental income. However, real estate is not as liquid as other investments, and the returns can be inconsistent due to market fluctuations. Diversifying away from real estate into more liquid and scalable assets like mutual funds can enhance your portfolio’s flexibility and growth.
Financial Assets Review
You have accumulated an impressive range of financial assets:
Provident Fund: Rs. 1 crore is a solid, long-term foundation for your retirement.
Public Provident Fund (PPF): Rs. 20 lakh is a reliable and tax-efficient investment.
National Pension Scheme (NPS): With Rs. 20 lakh in NPS and a Rs. 30,000 monthly contribution, this will provide additional retirement security.
Sukanya Samriddhi Yojana (SSY): Rs. 10 lakh saved for your daughter’s future education or marriage is a prudent move.
Mutual Funds: Rs. 50 lakh indicates a good approach to market-based investments.
Bank Balance and Fixed Deposits (FDs): Rs. 50 lakh gives you liquidity but earns low returns. Consider reducing exposure here.
Shares, Options, RSUs: Rs. 65 lakh (approx.) in stocks and RSUs is impressive and provides equity exposure.
Gold: With Rs. 1.5 crore in gold, you have a significant portion in this asset class. While gold is a good hedge, it doesn’t generate regular income.
Unlisted Shares: Rs. 6 lakh in unlisted shares adds some diversity but carries high risk.
Crypto: Rs. 7 lakh in cryptocurrencies is highly speculative. You should carefully monitor this segment.
Income and Investment Streams
You have a total of Rs. 1.5 lakh in mutual fund SIPs, Rs. 1.2 lakh in recurring deposits, Rs. 1 lakh in PF, Rs. 25,000 in PPF, Rs. 30,000 in NPS, and Rs. 12,500 in Sukanya Samriddhi. This indicates you are systematically investing Rs. 4.07 lakh per month. Your strategy of spreading investments across different asset classes is good, but there’s room for optimization.
Insurance
Your term insurance of Rs. 1 crore is sufficient to provide financial security for your family. You also have adequate health insurance, which is critical given the rising costs of healthcare. Since you are covered with corporate insurance as well, you are in a strong position.
Monthly Expenses and Lifestyle
Your monthly expenses of Rs. 1.7 lakh include international vacations, reflecting a comfortable lifestyle. Given your substantial income, this is well within your budget. However, given the uncertainty in the corporate sector, you should focus on increasing your investment surplus and potentially adjusting your lifestyle slightly to allocate more toward long-term financial independence.
Ancestral Inheritance
You are expecting an inheritance of Rs. 8 crore, which adds further to your financial strength. While inheritance can offer significant financial security, it is important not to rely solely on this for your long-term financial planning. Planning for financial independence with the assumption that this inheritance may be delayed or used differently is wise.
Goals for Financial Independence
Given the uncertainty in the corporate sector, achieving financial independence as early as possible is a wise goal. Here are some key strategies to focus on:
Build a Corpus for Early Retirement: Financial independence means having enough passive income to cover your expenses without relying on your active income from employment. To achieve this, you should aim to build a corpus that generates sufficient returns to cover your expenses.
Review Investment Allocation: While your current investments are diversified, there is room for improvement. Mutual funds should be a bigger part of your investment strategy due to their higher potential for growth and liquidity compared to real estate and FDs. You can consider increasing your SIPs or even adding more funds to increase equity exposure.
Enhance SIP Contributions: You are currently contributing Rs. 1.5 lakh to SIPs. To fast-track your goal of financial independence, consider increasing your SIP contributions by Rs. 50,000 to Rs. 1 lakh more per month. Since you already have a comfortable income surplus, this should be feasible.
Bank Recurring Deposits (RDs): Rs. 1.2 lakh per month in RDs is a significant amount. While RDs are low risk, the returns are also limited. You may consider redirecting some of this towards higher-return options like mutual funds.
Avoid Over-Reliance on Gold: With Rs. 1.5 crore in gold, your portfolio may be too heavily tilted toward this asset. Gold does not generate regular income or dividends, and its growth potential is limited. Consider gradually reducing your gold exposure and moving funds into more productive assets like equities.
Unlisted Shares and Crypto: Rs. 7 lakh in crypto and Rs. 6 lakh in unlisted shares carry high risk. Monitor these investments carefully, and avoid increasing exposure unless you fully understand the risks. While diversification is good, high-risk assets should not form a large part of your portfolio.
Reassess LIC Policies: If your LIC policies are purely for investment purposes, they may not be the most efficient vehicles for wealth creation. You could consider surrendering these and redirecting the funds into higher-return mutual funds, where returns are generally better over the long term.
Planning for Your Daughter’s Future
You’ve already made good progress with Rs. 10 lakh in Sukanya Samriddhi. Continue contributing to this for her education and marriage. Additionally, consider earmarking a portion of your mutual fund investments specifically for her education, given the rising costs of higher education.
Early Retirement Consideration
You are in a strong financial position to aim for early retirement. Here are some recommendations to strengthen this possibility:
Calculate Required Corpus: Based on your current lifestyle and expected future expenses, estimate the corpus you need to retire comfortably. Given your monthly expenses of Rs. 1.7 lakh, your retirement corpus should be large enough to generate sufficient passive income.
Focus on Increasing Equity Exposure: Equities are a growth-oriented asset class, and with your long-term horizon, increasing your exposure to equity mutual funds can provide the growth needed to achieve financial independence sooner. This is especially important if you wish to retire early.
Increase Contributions to NPS: NPS is a great retirement-oriented product that provides both tax benefits and long-term growth potential. You can consider increasing your contributions to NPS to create a larger retirement corpus.
Final Insights
You and your wife have laid the foundation for a financially secure future with a diversified portfolio and strong income. However, to achieve financial independence and protect against corporate sector uncertainty, you should focus on optimizing your investments.
By increasing SIP contributions, reducing exposure to low-return instruments, and focusing on high-growth assets, you can fast-track your financial independence. Additionally, ensure that your investment strategy accounts for your daughter's future, early retirement goals, and potential lifestyle changes.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
