Name: Manoj Agarwal
Resides in Delhi
Profession: Pvt. Services: Spouse -Swati (33),Son- Raghav (4)
Annual income (Rs 7.2 lakh)
Status & goals
Manoj (35) is working with an electronics company as a senior manager in Delhi. He is a conservative investor who does not like to take much risk. He has planned most of his goals through insurance policies advised by his agent and the negligible equity exposure he has taken is in ELSS for tax saving. The present high inflationary situation and increasing higher educational costs are making him jittery. He would,therefore,like to take professional guidance on how to plan his present and future needs.
A financial plan which can guide on his childs future,family protection and his retirement needs.
Monthly Income (post tax) Rs 60,000
Monthly expenses Rs 40,000
Net monthly surplus R20,000
Goals in order of priority
Sons College Education (2026) (inflation 10%)
Current Value Rs10 lakh
Future value R35 lakh
Sons Marriage (2036) (inflation 7%)
Current Value Rs 8 lakh
Future value Rs 38 lakh
Buying a house (2017)(inflation 8%)
Current Value R20 lakh
future value R28 lakh
Professional education for self (2021) (inflation 10%)
Current Value Rs 5 lakh
Future value Rs10 lakh
Retirement Planning: (2038)
(Pre-Retirement Inflation at 7%,Life expectancy 83 years)
Current expenses (per month) Rs 25,000
Future Value(per month) Rs 96,000
cor pus required Rs 2.20 crore
Equity-MF Rs 10,000
PPF: Rs 2,00,000
EPF: Rs 4,00,000
Cash: Rs 1,00,000
FDs: Rs 75,000
Insurance Surrender Value: Rs 5,00,000
Emergency fund: Manoj maintains Rs 1.75 lakh in savings account and fixed deposits
Health Insurance: Family is covered through Group Insurance of Rs 3 lakh.
Life Insurance: Covered for Rs 20 lakh through five traditional plans and one ULIP paying a premium of Rs 75,000 p.a.
Existing Investments: He takes all financial decisions with help of his insurance agent.
Liabilities: Car loan with outstanding amount of Rs 2.5 lakh paying an EMI of Rs 5,700 p.m.
Emergency Fund: He is maintaining enough funds for his emergencies and so no enhancement is recommended.
Express Tip: Emergencies like unemployment,illness or unplanned expenses can arise in future and so the Fund should be liquid enough to be accessible in such situations.
Sons College Education: Manoj should allocate PPF investments towards this goal which will fetch him approx. Rs 18 lakh. For balance requirement he can do a monthly investment of Rs 3,000 in diversified large cap mutual funds scheme and Rs 3,000 in balanced mutual funds scheme.
Return Assumed: PPF 8% p.a. Equity 12% p.a.
Express Tip: The rise in cost of education at times can eat into a large chunk of your family budget and so should be planned ahead to avoid any forced borrowing
Sons Marriage: This goal can be met by allocating a monthly investment of Rs 3,000 in diversified large cap MF schemes.
Returns assumed- 12% p.a.
Express Tip: Inflation and taxes eat out returns in the long term and so the selection of asset class should take these two factors in consideration
Buying a House: Considering 20 per cent as down payment,Manoj will need approx. Rs 5 lakh after 4 years. To meet this goal he will need a monthly investment of Rs 8,000. Since allocating this amount is not viable at this stage,he should start saving with a lower amount through debt mutual funds schemes and enhance the contribution with increase in income. Also he will have to take into consideration the EMI outgo for the housing loan which he will avail. He should review the situation after 4 years and take decisions accordingly.
Return Assumed: 8% p.a.
Express Tip: Buying a house is a lifetime decision and so it should rest on a detailed analysis of your finances to avoid straining them which can result from higher EMIs.
Professional Education for self: To meet this goal Manoj will need a monthly investment of approx Rs 4,500 in Equity Large cap MF schemes. Alternatively,he can go partly for an education loan to meet this requirement.
Returns assumed- 12% p.a.
Express Tip: Education loan are a good source to meet the high cost of education as many relaxations are available which can be used to make your repayment smoother.
Life Insurance: Manoj should have an insurance cover of Rs 85 lakh. He should buy this through a term insurance which will cost him approx. Rs 12,000 annually.
Express Tip: Life insurance needs change with changes in your financial situation and so it should be reviewed periodically to enhance it when required.
Health Insurance: He should avail a standalone policy of Rs 3 lakh for his family. This will cost him approx. Rs 10,000 annually.
Express Tip: Although a group insurance serves well in many instances due to lesser waiting periods,it is available till your employment and so a standalone policy should be availed to bridge this gap.
Retirement Planning: His EPF contribution will fetch approx. Rs 1crore. He should exit his insurance plan which are inefficient and invest the proceeds in Equity Mutual Funds. This will fetch him approx. Rs 75 lakh. For balance requirement he will need a monthly investment of Rs 2,000 in diversified equity mutual funds scheme.
Return assumed: 12% p.a.
Express Tip: Although EPF is a forced contribution but with EEE status it is highly effective in meeting retirement goals provided you avoid any premature withdrawal and enhance your contribution at regular intervals.
Insurance is for protecting your loved ones and investment is to create wealth. When insurance is made to deliver returns it becomes a costly product. Since you have limited resources,its wiser to keep these separate and utilize your money efficiently.
Plan By Jitendra P.S.Solanki
Certified Financial Planner,
Member of the Financial Planners Guild,India
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