How can I better my current investments

I am Suraj Rai 27 years old salaried person. I am married and my wife is a teacher. We have 1 year old baby boy. My current salary is 32k/month and wife is getting approx. 13k/month in hand. We both are expecting at least 10% continuous hike in our salary/year. We are trying to build financial wealth as much as possible as my father's retirement is still 5 years later(He is government C class A grade central railway employee). So we have sound family's financial backing at present if something goes south. I have done below investment till date. 1. 2 LIC policy with combined yearly payment of 27025 Rs(it's insurance clubbed with investment). 2. 1 ELSS scheme taken of Axis Bank Long Term Fund, amount 50000 lump sum payment done in December 2016. 3. 15872 Rs/year of medical cover for me, my wife and a 1 year kid taken in August 16. total coverage is 18 lakhs for us, 15 lakhs in joint while 1-1 lakh each for me, wife and baby. 4. One 2 BHK flat purchased in Virar W Mumbai in April 2016 along with property & life cover(Rs 36 lakh) till loan period (11 years after possession). Agreement value is approx. 39.5 lakhs. EMI will be 44.5K/month once possession is given to us. Till that period , PRE EMI will be getting deducted(presently around 25K/month). My views are that taken life insurance policy will work as a debt fund along with minimum insurance cover. after 40 years projected return is approx. 40 lakhs. By the same time I will have Second I wish to use ELSS scheme for next 2 more years to build a decent emergency fund as that is major concern for me due to lack of funds in hand. Further I wish to stabilize my finances for some time as I believe, I am overstretched due to loan EMI. For more safety Should I buy additional life cover for me & my wife as premium is very low nowadays? I have 10 lakh of life cover already from LIC and additional 36 lakhs jointly with my wife from Aviva life insurance which is linked to my home loan account. My wife doesn't have any other insurance cover. Please have a look in my investment pattern and suggest what can be done to make it better. If any clarity is required, please let me know?

Apr 26, 2017 by Suraj Rai, Mumbai | Financial Planning

1. We think you should not mix insurance with investments and also should not compare debt funds with your life insurance policies. How you have calculated that you will receive Rs 40 Lakhs from your and your spouse’s insurance policies for which you are paying annual Rs 27,000 premium? It is not at all clear to us!

2. Your life cover should be around 20 times your annual income. Therefore your total life cover should be at least Rs 1 Crore 28 Lakhs (Rs 30,000 x 12 x 20) and life cover of your spouse should be around Rs 32 Lakhs (Rs 13,000 x 12 x 20). You should bridge the gap between your current life cover and the cover that you should have, by taking term plans for you and your spouse.

3. You have done a good thing by taking life cover to the extent of liabilities of the home loan amount.

4. Your health insurance cover including your family is also okay

5. In the entire plan of your finances, we found that you have only Rs 50,000 investment in ELSS mutual Funds. Investing in equity mutual funds is the best way to create long term wealth and this is where you are lacking.

You should invest your monthly surplus amount in mutual funds through monthly SIPs in open ended funds or ELSS (if you need tax savings too!). Since you are only 27 years old, you can create a corpus of Rs 1.53 Crores when you are age 55, by just investing only Rs 5,000 per month (assumed 12.5% annual return on Rs 5,000 invested through monthly SIPs in equity funds for 28 years)

6. You can further increase the monthly SIP amounts by 10% per annum as you are getting a salary hike of 10% per annum. Assuming you increase the SIPs by 10% per annum, the above corpus can go up by another one Crore more, i.e. Rs 2.55 Crores after 28 years! You can try this calculator to check - https://www.advisorkhoj.com/tools-and-calculators/mutual-fund-sip-calculator-step-up

7. Your idea of creating an emergency corpus by investing in ELSS funds is wrong! As ELSS funds are equity funds and also locked-in for 3 years, it cannot be used for emergency purposes. For creating emergency corpus, you should invest in liquid funds. These funds are substitute to savings bank account but give higher return than savings bank while providing almost the same convenience.

8. In conclusion, we feel that allocation more to equity mutual funds and planning for your long term goals, like child education and your retirement are very important. Since you are quite young you can benefit by long term compounding and achieve your goals by investing small amount every month through SIPs.

Hope you find the above assessment useful. In case you have some more queries, do write back or comment on the query section. Thanks : )

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