Name: Kushal Puri,32
Resides in: Zirakpur,Punjab
Profession: IT professional
Net annual income
(Rs 14.6 lakh)
Status & goals
Kushal and his family live with his parents. Both Kushal and Ankita earn a regular income. The couple wish to create a sufficient corpus for Kashish’s education and marriage,buying their dream house and a comfortable retired life
A financial plan that can channel their savings efficiently to provide for goals
Net Monthly Surplus
Kushal’s investment does not indicate much diversification. Apart from PPF and mandatory EPF,he has invested in land. A sizeable amount of the couple’s savings goes towards paying life insurance premiums without providing sufficient cover. The couples’ modest financial goals can still be achieved due to their high savings ratio.
PPF Rs 2.75 lakh
EPF Rs 3 lakh
Insurance Cash value Rs 2 lakh
Land Rs 12.5 lakh
There is no provision of an emergency fund
Entire family is covered by company provided group mediclaim policy of Rs 2.5 lakh. No other health insurance cover.
Kushal enjoys Rs 9 lakh cover while Ankita has Rs 7 lakh cover. There is a need to diversify into equity investments too in order to get benefit of long term inflation-beating and tax efficient returns
Emergency fund Need to maintain Rs 1 lakh for emergency fund
Express Tip: Keep 3-6 months of expenses that can be liquidated at a short notice
Kushal and Anita should each take an individual health cover of Rs 5 lakh and Rs 2 lakh for daughter
Express Tip: Adequate health insurance protects oneself from the situation of having to withdraw from investments meant for other financial goals
There is a shortfall of Rs 85 lakh in life cover for Kushal and Rs 60 lakh for Ankita,which can be secured by buying pure term insurance plan. Annual premium will be around Rs 25,000 for both term plans. Existing traditional policies can be made paid up and the resulting premium savings can be utilised for the new cover.
Express Tip: In order to ensure continuity of lifestyle in the absence of the bread earner,adequate life insurance cover is necessary and term plan is the best way to insure oneself at a nominal cost.
Daughter’s education and marriage
Allocate Rs 8,000 per month in two equity oriented balanced funds for Kashish’s education. Gradually shift the funds to debt as you approach near the goal. Rate of return assumed: 10 per cent p.a.
For her marriage,invest Rs 12,500 per month in the ratio of 70:30 in equity mutual funds and gold funds. Rate of return assumed: 12 per cent p.a. for equity MF and 9 per cent p.a. for gold.
Express Tip: Balanced funds have an inbuilt asset allocation of debt and equity,which provides diversification and inflation beating returns in the long run.
Invest Rs 52,700 in the ratio of 60:40 in equity and debt in diversified equity funds and short term income funds. Entire corpus needs to be shifted to debt one year before the goal attainment period.
Express Tip: A judicious mix of debt and equity gives steady returns along with providing diversification
As per the expense replacement method,Kushal will require a corpus of Rs 7.54 crore at retirement. An allocation of Rs 70,000 in PPF and Rs 48,000 in voluntary PF every year will help create a corpus of Rs 2.56 crore at retirement. Land investment will be worth approximately Rs 2.90 crore assuming 10 per cent growth per year. The shortfall of Rs 2.07 crore can be bridged by investing Rs 7,000 per month in diversified equity mutual funds. Rate of return assumed: PPF and EPF – 8 per cent p.a,Equity MF – 12 per cent p.a.
Express Tip: PPF and EPF are forced savings and should be kept for retirement as the compounding effect ensures a good tax free corpus.
The advantage of low expenses and high savings should be utilised in the right manner by investing the surpluses in prudent asset classes so your financial goals can be achieved without taking unnecessary risks. Goal monitoring is also suggested so that you do the desired changes when you are approaching your goals.