Drowning In EMIs At 25? Here's The Fix!

Do you have mutual fund, insurance and personal finance-related queries?
Please ask your questions HERE to rediffGURU Reetika Sharma, who has an MBA from the ICFAI, and professional certifications from the FPSB, AMFI and IRDAI.

Nitin: I am 25 years old and earn Rs 68,000 per month. My current monthly obligations include a car loan EMI of Rs 22,500, a personal loan EMI of Rs 5,300, and other fixed expenses of around Rs 5,000.
I also need to repay my mother's gold loan at Muthoot, which has an outstanding balance of Rs 241,000 with a monthly interest of Rs 3,050 and I want to close this loan as soon as possible.
At the same time I want to start wealth creation and also travel. Could you help me create a practical plan to manage my finances, prioritise debt repayment (especially the gold loan) and begin investing effectively?

It is good that you are keen on investing and repay all your loans at such age. Let me analyse things for you in detail.

1. Total Income -- 68,000 per month; EMIs -- 31,000 per month (including gold loan) and expenses -- 5,000 per month.

Your total EMI is approximately 47% of your monthly income. It needs to be reduced.

You are left with approximately 32,000 per month. Here's the plan for the same.

2. Finishing off gold loan is necessary followed by your personal loan. Take out an additional 10,000 per month to pay off your gold loan first as it has the highest interest rate.

3. You will have 22,000 now and you need an emergency fund for yourself. You should have 50k in FD as your emergency fund. Take out 5,000 per month for the next 10 months. Doing this will leave you with additional 17000 left with you.

4. Make sure to have a separate health insurance for yourself and family. Along with term insurance of at least 50 lakh for now.

5. Invest the remaining amount of 17,000 in 2 parts -- 7,000 for long term in equity mutual funds. Choose a flexicap fund and a balanced advantage fund for this -- 2500 in each fund.

Invest remaining 5000 in RD for your travel plans.

This plan will sort your entire obligations and goals. Make sure to stick with the numbers so as to finish off your loans and invest as per the given plan.

'On paid premiums of Rs 5.88 lakhs for 12 years, you will get back only Rs 4.6 lakhs'

Imran: I have 2 LIC Jeevan Saral policy. I have been paying a cumulative quarterly premium of 12,250 for these policies for last 12 years. The duration of these policies is 20 years.
If I surrender these policies, I will get an approximate amount of 460,000 for each policy. Do you think it is worth to continue with it for next 8 years?

LIC policies are best known for their low returns of maximum 4%-5% over the entire tenure. This return is even less than that of a FD.

But you have already paid premiums for 12 years -- 5.88 lakhs; you will get only 4.6 lakhs back. This is the case with every LIC policy.

Whether to continue or surrender depends on your requirement.

• Continue if you are ok with such low returns
• Surrender if you will reinvest the proceedings in equity mutual funds or if you need money

Surrendering now will be a loss for you. But reinvesting the entire 4.6 lakhs into mutual funds along with quarterly SIP of 12.5k will give you 17.8 lakhs at the end of 8 years.

And this amount is more than total sum assured if you continue policies. Plus final values will compensate for the loss you will feel now.

Hence better to surrender and reroute those investments in high return generating instruments.

Sharad K: Dear Reetikaji, Namaskar! I am 49 years old and for the past 3 years have been investing in mutual funds. I request you to kindly analyse my portfolio which I am investing like this -- parag parikh flexi cap -- 35k; icici equity and debt -- 25k; nippon small cap -- 30K; Motilal oswal mid cap -- 30K; hdfc balanced advantage fund -- 20K. I request you to kindly guide on the following questions please -- 1. If I continue in this fund till next 10years, how much corpus can be created? 2.
For a goal of 10Cr., what changes in portfolio is required, how much need to be invested per month and how many years do I need to invest to achieve 10Cr.? Thank you for your time and help. Regards, Sharad

It is good that you are consistent in your investments for past 3 years. Currently you are investing 1.4 lakhs per month.

Your goal is to achieve a corpus of 10 crores.

• Current funds are good for you to continue but a minor rebalancing can do wonders for you.
• Although you are investing on your own, taking a professional's help will actually help you in monitoring the investments regularly, in alignment to your financial goals.
• If you continue this investment for 10 years, you can get around 4.7 crores after 10 years.
• Your goal of achieving 10 crores will be achieved in next 15 years assuming you continue investing like this generating annual return of 12%
• However, if you step-up your SIP by 10-15% annually, you can achieve your goal sooner by 3 years.

Right now, you are investing in direct funds as they seem quite lucrative. But investing through a certified professional can actually help you achieve your goal much faster and calmer.

Hence do connect with a professional Certified Financial Planner -- a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile. A CFP periodically reviews your portfolio and suggest any amendments to be made, if required.

'LIC policies give an annual return of only 4%-5%'

Anonymous: I am 40 years old married I have two kids 10 yrs and 7 yrs. My monthly salary is 160,00. I have 45 lacs home loan EMI of Rs 71,000/- for next 7 years (closing December 2032). I will get rents around 30,000, I have taken term insurance for 2 CR.
I have not taken outside health insurance, Only company health insurance is there. I need to pay school fees around 2 lakhs for both the kids per annum.
My current PF balance is 10 Lakhs, Still no car purchased. I have invested in house plot (land) now its current market value is around 50 lakhs.
Monthly expense is around 25 K, no rent,I need to take care of my parents.
I have taken 4 lic policies (me, wife & kids), paying around 1 lakh each policy 5 lakh maturity benefit.
I have not planned my carrier financial requirements for next 20 years requirement, like PPF, MF, Sukanya Samriddhi Yojana, for my daughter, corpus amount.
Now I am thinking of my kids' education, health, marriage. Since I am working in the private sector not sure when what will happen. At least now I need to plan it correctly. Can you please share the best plan what can I do?

You have done good so far but the overall financials and investments are quite disorganised. Let us have a detailed look:

• You should have a dedicated emergency fund in FD; at least 3 to 6 months of expenses
• Term cover taken seems good but also need a personal health insurance of minimum 10 lakhs to cover your family. It will come handy when you change job and at present your premium will be less as compared to if you purchase one in future.
• You have a flat with EMI 71k for next 7 years i.e. 44% of your income goes into this. This is a very bad purchase. One should not have any EMI exceeding 30% of salary. Either reduce your emi somehow or consider selling this as rent of 30k per month only gives you 1%-2% rental yiled annually. Investing in other instruments guarantees a minimum 12% annual return.
• Land worth 50 lakhs -- good but this is not liquid. Can hold it though for long term.
• 4 LIC policies -- not at all required. LIC policies give an annual return of only 4-5% and are highly commissioned products which is not recommended to anyone. A simple FD would have been better than this. If you can, consider stopping these policies at a certain loss and redirect these investments to equity mutual funds for long term.

As you mentioned, you haven't planned for anything, you need some aggressive and well planned investments for:

• Kids' education
• Parents' health
• Your retirement
• Kids' marriage
• Any other major money goal you might have

71k from your current EMI and another 29k from your salary -- total 1 lakhs should be invested per month into equity and hybrid mutual funds as per goals. 1 lakh for next 20 years (assuming 14% CAGR and 10% step up) will give you 22 crores after 20 years.

And any further increase in investments will increase the corpus amount.

Hence, you need to work with a dedicated professional to start your investments in alignment with your current situation.

Ram: I'm an NRI (USA) currently contributing to NPS for retirement (long-term). Separately, I want to build a near-term income stream over the next ~2 years while keeping taxes efficient. I'm open to mutual funds and other suitable instruments to NRIs. My risk tolerance is moderate and can invest up to 1.5 lakh per month.

As you are NRI and looking for an income stream in near future, you have limited options.

• Go for NRE fixed deposits which has low risk and provides 6-7% return, or
• Go for debt mutual funds with less risk and better returns than FD

For long term, continue investing in NPS

• You can ask rediffGURU Reetika Sharma your questions HERE.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.