Anuj, a Tax professional, has twins and is concerned about their primary and higher education. He has managed to sort out a financial plan for him. Let's Evaluate how well he has done it. And Suggest him for Improvements.

Anuj has an emergency corpus of Rs 7 lakh. It combines fixed deposits (Rs 4 lakh) and an aggressive hybrid fund (Rs 3 lakh). Aggressive hybrid funds invest 65-80 per cent in equity, making them highly volatile and risky for short-term investment. Hence, they are not appropriate for an emergency fund.

Please Note: You should park an emergency fund in non-risky investment products, which you can quickly liquidate. Short-duration debt funds also generate better returns than a savings account.

Action: Move your emergency corpus from the aggressive hybrid fund to a short-duration fund.

Health insurance

Anuj depends solely on the health cover provided by his employer. Employer-provided health insurance is good only if you are associated with the employer. Your Insurance cover ends if you switch your job. You are not covered even during the job-transition phase, and there is no guarantee that the other employer will provide the same benefits. Anuj should buy health insurance of at least Rs 5-7 lakh, covering his wife and kids. He should also purchase a senior-citizen health-insurance plan for his mother.

Action: Buy health insurance independent of your employer

Life insurance

Anuj has two-term plans, providing a combined life cover of Rs 3 crore, sufficient. He pays an annual premium of Rs 40,000 for them. A term plan is better than endowment or unit-linked insurance plans as it provides adequate cover at low prices. Endowment and unit-linked plans provide neither sufficient insurance nor good returns.

Action: Continue to stay away from the endowment and unit-linked insurance.

Children's education

Anuj estimates that he will need Rs 10,000-12,000 every month for his kids' school fees. He may consider reducing his monthly SIPs as and when the expenditure arises. Even the reduced SIPs are sufficient to fulfil his goals. An average 8-10% annual increase in the school fee can be met through yearly appraisals.

Anuj would like to spend Rs 80 lakh on his children's higher education. Considering inflation of 8%, this amount would swell to Rs2.74 crore by the time this money is required. He has already accumulated Rs3.72 lakh for this purpose. Considering a return of 12 per cent, a SIP of Rs 25,000 would fulfil this goal. But he needs to increase the SIP amount every year by at least 10 per cent.

Action: Invest Rs 25,000 every month in Flexi-cap funds for children's higher education.

Children's wedding

Anuj aims to spend Rs 20 lakh in today's value on his kids' weddings. At an inflation rate of 8 per cent, this amount would inflate to Rs 2.35 crore for both of his kids. He has accumulated Rs 2.4 lakh in mutual funds so far for his children's weddings. A SIP of Rs 7,500, increasing every year at 10 per cent, would be sufficient for this goal.

Action: Invest Rs 7,500 every month in Flexi-cap funds.

Retirement

Anuj would need a retirement corpus of Rs 12.94 crore to maintain the same lifestyle in his post-retirement years (at a return of 9 per cent and inflation of 8 per cent in the post-retirement years). He has so far accumulated Rs 10.54 lakh for this purpose. His mandatory monthly EPF deductions of Rs 25,000 would alone fetch him around Rs 4.36 crore at an average interest rate of 8 per cent. He can do a SIP of Rs 31,000 per month for the remaining amount. Again he needs to increase this contribution by 10 per cent every year.

His current accumulation includes Rs 2 lakh invested in a tax-saving fund. Although the lock-in period in a tax saver is only three years, one should try to stay invested as long as possible to reap the benefits of compounding. Further, the investment in a tax-saving fund should be linked to a long-term goal like retirement.

Action: Do a monthly SIP of Rs 31,000 towards retirement. Link your tax-saving investments to retirement.

Funds

Anuj's portfolio comprises five well-rated equity funds. Although the schemes selected by him are good, only 37 per cent of the Corpus is in Flexi-cap funds. The rest is in either aggressive hybrid funds or large- and mid-cap schemes. He doesn't need to invest in a hybrid fund with a debt component, as all his goals are more than 15 years away. Simply investing in three to four good Flexi-cap funds and a tax saver is enough. Flexi-cap funds have the flexibility to invest across all sectors and companies of all sizes.

Also, he should start moving to a conservative portfolio as his goals are near so that he doesn't have a diminished corpus at the time of goal realisation should the market fall.

Anuj may consider selling his second house and investing the proceeds in Flexi-cap funds over three years. Real estate yields low returns and has a high maintenance cost as an investment. Alternatively, he may rent out the property and invest the monthly rent in Flexi-cap funds.

Action: Move to Flexi-cap funds. Consider selling your second house and investing the proceeds in Flexi-cap funds.

Keep in mind

1. The emergency corpus should be in safe avenues. It shouldn't be in equity funds.

2. Even if you have employer-provided health cover, buy one independent of your employer.

3. Link your tax-saving investments to a long-term goal like retirement.

4. Flexi-cap funds are the best option in equity funds as they can invest across all market caps.

5. Avoid investing in property as it is illiquid and generates low returns.