Name: Srimala (37)
Resides in Kochi
Profession: Fashion designer
(Rs 16.50 lakh)
Status & goals
Srimala is a single mother and resides in her parents house in Kochi. She has one daughter Bhawani (12) who studies in sixth standard. Srimala is a fashion designer and earns by selling her designed clothes in different exhibitions all over India. She wants her daughter to get the best of education so she can face the world with confidence. Shes very much against splurging on marriages and thus doesnt want to save a single penny for her daughters marriage. She wants to retire as soon as her daughter completes her graduation.
The basic goals are education for her daughter and planning for her retirement.
Net monthly surplus
Savings Account Rs 3 lakh
Bank Fixed Deposits Rs 12 lakh
ULIPs Rs 2 lakh
Inheritance expected House and
Rs 30 lakh
Emergency fund: Srimala has enough liquidity in her savings bank account. In fact,more than required.
Life insurance: She only has some ULIPs in her portfolio in the name of insurance.
Health Insurance: She doesnt have any health insurance policy.
Investments: Her investments are more into bank fixed deposit. As she doesnt want to engage any financial adviser,so could not think of anything better than bank FDs.
Emergency Fund: She needs to break her big fixed deposits and keep Rs 1.35 lakh aside in a saving bank account as emergency fund.
Express tip: Creating emergency fund should always be the first step in any financial planning. It will provide necessary liquidity in the portfolio to tackle any kind of emergency.
Life Insurance: Life insurance is a must for Srimala as she has Bhawani,her daughter,as dependent and her savings are not enough to take care of her. She should buy life coverage of at least Rs 50 lakh. The premium would be around Rs 11,000 p.a.
Express tip: When you have financial dependents get an adequate life insurance coverage so that your dependents can be taken care of in your absence.
Health Insurance: Health insurance is very important for self-employed as they are not even covered under any employer provided scheme. Srimala should buy a floater policy of at least Rs 5 lakh sum assured covering her and bhawani. The premium would be around Rs 12,000 p.a.
Express tip: Health problems can drain all your savings. So better be protected always and covered with adequate health insurance.
Accident Insurance: Accidental coverage is like income insurance,as it protects the income loss in case of any disability. Srimala should get her an accident insurance policy of Rs 50 lakh with maximum possible temporary total disablement benefit rider. The premium should be around Rs 7,000.
Express tip: Disability coverage is very much important in todays kind of fast lifestyle. But still if you have sufficient assets and savings with you than sometimes you can avoid this too.
Bhawanis education (2019): She should start investing Rs 35000/- per month in equity and debt mutual funds through SIP route. She should opt for asset allocation of 60:40 (equity: debt).
Rate of return assumed: equity 12% and debt 8% post tax.
Express tip: Asset allocation should be selected as per your risk profile,past experience and time frame left to reach your goals.
Retirement Planning (2025): With the current financials it is looking difficult to achieve the goal of retirement in next 12 years. Srimala should start investing her balance monthly surplus with the allocation of 60% equity and 40 % debt. She should also allocate the current FD,ULIP and balance in savings bank account after emergency fund,towards this target. Goal and investments should be reviewed every year.
Express tip: Retirement is one of the very important goals,and if started early in life can be achieved very comfortably otherwise you may have to compromise on other important goals.
Life may be difficult to plan but finances are comparatively easy. When your finances are properly planned,uncertainties in life can be well taken care of.