I am a 27-year-old woman, and have been working for past four years. I earn Rs.27,000 a month, and my expenses come up to Rs.18,000. I had taken an education loan of Rs.4 lakh, which I have been repaying for the past four years. I want to create a short-term financial portfolio where I get returns every year, and a long-term portfolio as well. I also want to pay off my loan in the next two years. Lastly, I would like to save Rs.8-10 lakh in the next two years. I wanted to know if these financial goals are achievable within their time frames.
—Priyanka Dey
If we consider your financial goals, we can broadly classify them in two categories. Your short-term goals form one category, where you need to repay the education loan within two years and save Rs.8-10 lakh in the same time frame. Your long-term portfolio will be the second category.
Next comes how much you can save. Based on your cash flows, you have a potential to save Rs.9, 000 per month. This means that in the next two years, you will be able to accumulate Rs.2.16 lakh as principal corpus. Assuming you will be able to increase your savings in the second year by 10% (based on an increase in salary), the principal savings become Rs.2.26 lakh.
The variable factor in the planning is the rate at which you grow the corpus. Here, you have to follow some basic principles of financial planning, i.e., savings intended for short-term goals defined here as up to two-three years cannot be invested in aggressive asset classes. Therefore, you cannot consider equity as an asset class.
Hence, if we look at debt instruments the options available are recurring deposits, and short-term mutual funds. The returns offered by these products will be 8-9%. If you want to a better earning rate, then you need to have exposure to equity. You can consider a limited exposure to equity. However, for such a short period, this is not recommended. What you could consider is investing in balanced mutual funds, i.e., a scheme with a 65% risk exposure or equity, and the remaining 35% in debt securities. While this is not a recommended option considering its high equity exposure for the short term, it has the potential to deliver higher returns. The targeted return could be 10-12% if held for more than three-four years.
But in both scenarios, the effective corpus at the end of the two-year period is significantly lower than your expected goals. At 9% return, you can shore up Rs.2.37 lakh, and at 12% it will come up to Rs.2.45 lakh. Therefore, you need to bring down your financial expectations. You can target to use this corpus to pay the education loan, and push the short-term goal of creating a corpus as a medium-term goal. You can target to achieve this in a period of five-six years. Further, push yourself to increase your savings every year in accordance with increases in salary. This will help you increase the corpus amount over the long-term.
