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Homing in on their dreams

Brijesh Dalmia

Posted: Jan 01, 2007 at 1220 hrs IST

Naimuddin Qureshi is only 29, recently married, and he’s already plotting to buy a house in Bangalore this year and starting his own business by 2015. No, this software engineer in Oracle doesn’t have ancestral wealth to inherit. It’s the savings from his substantial techie salary that will fund his necessities and ambitions. While the idea of a house is as recent as six months, when he got married to Shifa, his business ambitions go back five years. Says Naimuddin: “I’d be the first in my family to start a business. I like the idea of having my own business — it offers freedom and, if one is good, money.”

Aiming that high, at a young age like that, is a sign of the times, not an anomaly. With the salary that Naimuddin is earning (Rs 1.1 lakh gross a month) and the easy financing options available, goals like that are in the realm of the possible. And there’s Shifa who, with her frugal ways, is a counter to easy spender Naimuddin and is responsible for many a penny saved. The launch-pad is good. Here’s what the Qureshis need to ensure a speedy and safe flight.

The big goals

Naimuddin’s take-home is sufficient to finance their lifestyle. It’s a modest one, with indulgences like weekend breaks and eating out periodically at new joints with Shifa iterating restraint. However, they needn’t worry about a cash crunch, as they have enough in their savings account and fixed deposits to see them through six months of no inflows. With inflows coming, they can work on their big financial goals.

The Qureshis are looking at buying a house costing Rs 30 lakh in Bangalore this year. Assuming a down payment of Rs 5 lakh and a loan amount of Rs 25 lakh, the EMI (equated monthly instalment) on a 20-year loan will work out to about Rs 25,000. With his current earnings and spending patterns, servicing the loan should be a breeze.

The thing Naimuddin must do now is building a corpus for the down payment. All incremental savings towards this objective should go into a floating-rate fund. These are debt funds that are insulated from interest rate changes, thereby ensuring capital protection at all times, along with a return of 5-7 per cent a year.

As far as having his own software business goes, Naimuddin foresees an initial capital requirement of Rs 40 lakh, in today’s prices. In the coming years, their expenses are going to increase because of the home loan and the child the Qureshis are planning to have within two years. So, Naimuddin will have to rely on salary hikes, the surpluses from which are invested in high-growth financial assets like stocks.


The good thing about Naimuddin is that he’s initiated into equities he invests Rs 5,000 a month in an SIP (systematic investment plan) of an equity fund. He should be looking to bump up that amount to Rs 15,000 a month.

Although Naimuddin is looking at a surplus of Rs 2 lakh after paying his home loan EMI and taxes, increasing his SIP might be difficult in 2007 since the down payment for the house is the immediate priority. But once the down payment is done, an SIP of Rs 15,000 a month is possible. Of this, Naimuddin should consider investing Rs 5,000 a month in an ELSS (equity-linked savings scheme) to max his tax savings.


Since his financials are good, his savings strong, his investments judicious, it’s surprising to see that Naimuddin is tripping on life insurance. Blame it on misconceptions. “I looked at insurance as an investment tool and as a tax break, neither of which I wanted.” Good thinking, but he missed out on the USP of insurance: cover against unforeseen events.

Naimuddin is the only earning member of a family that is likely to have a little child and a big loan soon. He needs to ensure he leaves behind enough so that even if he is not around, Shifa and child are not bogged down in liabilities, and can meet expenses and maintain their lifestyle. I recommend a life insurance of Rs 60 lakh for 30 years, which will take care of his Rs 25 lakh home loan liability (premium: Rs 20,000 a year) and cover his family’s recurring expenses for the next 30 years.

Thankfully, Naimuddin and Shifa have health insurance of Rs 2 lakh each, through his company. However, looking at the rising cost of medical treatment, they would do well to increase the cover amount by Rs 50,000 every two to three years.

Other goals

Naimuddin’s other near-term future goals include financing their child’s education and a trip to Europe in 2010, neither of which he needs to stress now. Salary increments and accumulated savings should take care of those expenses. He needs to plan for retirement, which again he can do by saving regularly and by the retirement benefits offered by his company. Naimuddin is proof that financial planning is easier when you have a good salary, and you back it up with a savings and investing discipline that doesn’t border on the obsessive, but is just good.

Brijesh Dalmia is a certified financial planner (CFP)

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