Diversified investment is best

Lt. Col Srinivas Prasad, began his career in the armed forces. After a stint of over 22 years, he took voluntary retirement. However, he wasn’t ready to call it a day. The sprightly 45-year-old is currently working with a private sector infrastructure firm. He’s based in a small town close to Hyderabad.

Financial goals

Lt. Col Prasad wants to pursue his long-term passion for social service, coupled with some free lancing work. His son is currently in the 11th standard, and his education is the other major goal. His dependents include wife, mother and his son.

Where is he now?

The two primary sources of income for Lt. Col Prasad are his military pension and the salary from the current job. However, this is not all. He has taken a number of judicious financial decisions during his stint with the armed forces.
He already owns a flat in Pune, on which he’s paying a monthly instalment of Rs 7,800. He also invested in a number of other properties across Maharashtra and Karnataka, from which he is now drawing a rental income.
After factoring in his monthly expenses, he is able to save Rs 40,000 a month. Other assets include a bank deposit of Rs 30 lakh and an investment of Rs 5.8 lakh in fixed deposits. He also has two insurance policies with an annual premium of Rs 28,000.

Recommendations

Lt. Col Prasad’s investments are heavy on real estate, which he will need to alter somewhat. The medical needs for himself and his family is catered to by the Army Hospital for lifetime. He has sufficient contingency funds which can last for more than five years even if he opts out of his current job. His net worth is positive, and totals to Rs 1.21 crore.
The current earnings are sufficient to manage his lifestyle even if he opts out of his job, provided channels his surplus properly.
Since bank deposits generally yield returns lower than inflation, he should break about half of his current bank balance of Rs 30 lakh and deploy it in monthly income plans. These give a return of about 11 per cent versus eight per cent for bank deposits. The mix will yield returns of 8.5 to nine per cent per annum. This will allow him to keep pace with rising prices.
His son’s education including post-graduation studies over the next seven years shall cost about Rs 34 lakh. Investment in insurance schemes, shares and fixed deposits can help meet the requirement.
In the event of shortage of cash for any larger event, one of the properties could be disposed off to fund this goal. Son’s marriage can be met out of current surplus.
Health permitting, we suggest Prasad could continue to work for another three to five years before opting out of the corporate race.
He can also start investing up to Rs 20,000 per month in diversified equity mutual funds and balanced funds through a systematic investment plan. This will help him set up a retirement fund for any unforeseen future needs.
We wish the Pratap family well to meet their cherished goals.
(L. Ravindran, PhD, is a financial advisor and MD of Wealthmax Enterprises Management Private Ltd. Queries can be mailed
to youradvisor@
deccanmail.com)

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