Name: Vikram & Shipra Sharma
Reside in Pune
Profession: Sales manager in FMCG company
(Rs 13.2 lakh)
Status & goals
Vikram and Shipra reside in their own house with their son Siddhant (6) and daughter Stuti (3). Vikram has been working in the same company for the six years. He is from Punjab but works and stays in Pune. Shipra works part-time and delivers guest lectures at a management college. Shipras income is used for everyday needs of the family. Vikram provides for long-term goals such as education for his children and retirement. Vikram does not want to spend too much on his childrens marriage as he feels his children can arrange additional cost themselves.
A comprehensive financial plan securing couples retirement and a goal to purchase a dream home
Net monthly surplus
Savings Account Rs 1 lakh
Bank Fixed deposits Rs 2 lakh
PPF Rs 2 lakh
ULIPs Rs 1 lakh
Emergency fund: Vikrams savings and fixed account balance are good enough for emergency requirements.
Life insurance: Whatever life cover he has is through ULIPs which is not adequate.
Health Insurance: He has health insurance coverage of Rs 3 lakh through employer and Rs 3 lakh through private insurer.
Investments: He doesnt have much of investments,whatever he has is in PPF or bank deposits.
Provident fund: Employer is deducting a minimum amount of Rs 780 from his salary towards PF and same is his contribution.
Emergency fund: He needs to break his big FD and park Rs 65,000 in saving bank account. He needs to maintain Rs 1.65 lakh as emergency fund.
Express tip Building and maintaining emergency fund should always be the first step in any financial plan. Its an important risk management technique along with buying insurances.
Life Insurance: Vikram does not have adequate life insurance coverage. Looking at his dependents and after doing needs based analysis it is advisable for him to buy Life Insurance coverage of at least Rs 2.70 crore. It is advisable to buy this through online term plans which would cost around Rs 37,000 p.a
Express tip Not having adequate insurance coverage may cost huge to the dependents in case of any mis-happening. Adequate life insurance is a must have in ones personal finance profile.
Health Insurance: It is very important to have a separate health insurance cover even if your employer has covered you under group insurance. As Vikram has already done that so right now his total medical coverage looks adequate. Going forward he should increase his coverage and better to have a separate cover for every family member. He may increase the sum assured by 20 per cent every five years.
Express tip In current uncertain job scenario it is always wise to have a personal family health insurance cover over and above what your employer provides.
Accident Insurance Vikram should buy accidental insurance coverage of at least Rs 1 crore with a maximum temporary total disablement benefit available,so that the basic family expenses should not get hampered due to unforeseen accident. The premium for this would be around Rs 13,000 p.a
Express tip Disability coverage is very much important in todays kind of fast lifestyle.
Childrens education (2024 & 2027)
He should be saving Rs 28,000 p.m in the equity debt ratio of 70:30. Use Equity diversified mutual funds for equity allocation and dynamic bond funds and PPF for debt allocation.
Rate of return assumed 14% post tax in equity and 8% post tax in debt.
Express tip Right product gets selected only when the goals and time horizon is clear. PPF is a very good long term savings tool and so are equity mutual funds.
Childrens marriage (2032 & 2035)
Start saving Rs 5,000 p.m in equity- gold ratio of 70:30 for this goal. Use Gold ETF for gold allocation. Rate of return assumed is 14% post tax in equity and 8% post tax in gold.
Express tip In the Indian context you cant imagine marriage without gold. So better plan and start investing in the same right away.
Retirement Planning (2041)
Vikrams EPF contribution will help him accumulate around Rs 29.69 lakh of retirement savings. He should allocate the balance of bank fixed deposit after allocating emergency fund and also the balance in PPF and ULIP can be used for this goal. For the balance corpus he needs to invest Rs 15,000 p.m. in equity- debt allocation of 70:30. Consider EPF/PPF for debt allocation.
Rate of return assumed is 14% post tax in equity and 8% post tax in debt.
Express tip EPF is very good and compulsory savings instrument which supplements retirement savings with a decent sum. Thats why while you switch your job; transfer the balance of EPF in new account.
Comprehensive financial planning provides you with focussed approach directing towards all of your important goals. Following a structured process will eliminate the chance of emotional decisions in your personal financial life.