Name:Mukul (36) and Mansi Maideo (33)
Resides in: Navi Mumbai: Profession: Bankers
(Rs 13.2 lakh)
Status & goals
Mukul and Mansi both are bankers and have a six year old son Aarav. They have been saving and investing for a long time. Now they want to have professional guidance on the direction of their financial lives. Their main goals are Aaravs education and marriage and their own retirement.
A financial plan which can help plan their sons future,and provide for their retirement needs
Net monthly surplus
Life Insurance coverage
Husband: Rs 2 lakh endowment policy
Wife: Rs 2 lakh endowment policy
Child: Rs 1 lakh traditional child policy,one ULIP
Total premium paid: Rs 2.05 lakh per annum
Health insurance: They have health insurance cover provided by their employers which covers each of them for Rs 3 lakh. No personal health insurance availed.
Emergency fund They need to have a minimum contingency fund of Rs 2.10 lakh,which is three months of expenses including EMIs. They have Rs 75,000 in the form of savings account balance and fixed deposits.
Health Insurance They have individual health cover of Rs 3 lakh from their employer. This risk cover looks inadequate looking at the rising hospitalisation costs today.
Insurance All their insurance policies are saving cum insurance policies. They have taken one ULIP in the name of their child for which they are paying a premium of Rs 1.50 lakh per year. They have paid for three years,two premiums are pending. This is a major outgo for them. The risk cover is small compared to the premiums paid.
investments They have been investing both in debt and equity. They have locked up a huge chunk of money in insurance-cum-investment policies. Besides,there are two home loans. This leaves a small surplus for further investment.
Retirement They have not done any specific planning for retirement,but would like to consider one of their properties at their hometown for this goal.
Liabilities They have two home loans adding up to Rs 50 lakh which are outstanding. They pay an EMI of Rs 46,000 per month to service these loans. There are two properties. One of them is their primary residence and another one is for investment purpose.
Emergency Fund They can maintain their savings account balance and fixed deposit as their primary emergency fund. They can transfer Rs 1 lakh from their current MF corpus in equity mutual funds to a debt fund. This will serve as their second level emergency fund. Bonuses received during the year should also be added to the same debt fund to build up the corpus to about six months worth of expenses.
Express tip Always keep 3-6 months of expenses in ready to use form. Loss of job is a very real emergency in todays time and cause major disruptions in personal finances in absence of emergency funds.
health insurance Though they are individually covered for Rs 3 lakh from their employer,they should look at a family floater health insurance policy for Rs 10 lakh to take care of any major illnesses. This should cost them about Rs 16,000 p.a.
Express tip Employer provided health cover may fall short in case of major illnesses. Hence it is better to enhance with a personal health insurance.
life insurance Need based analysis shows that Mukul should get a risk cover of Rs 16 lakh and Mansi Rs 44 lakh. They should go in for term insurance plans with a tenure spanning their earning years. This should cost them about Rs 17,000 p.a.
Express tip Need based analysis gives a more realistic figure for insurance as it covers current and future expenses of the dependents.
Child goal Mukul has already paid three ULIP premiums amounting to Rs 4.5 lakh for Aarav,another two premiums remain. He can continue the policy but should move to a 100 per cent equity allocation. Assuming that the policy gives Rs 16 lakh at maturity,he will need an additional investment of about Rs 10,000 per month to complete the education goal and Rs 5,000 pm to meet the marriage goal. This he is already investing in through SIPs into equity mutual funds. He should continue his investments.
Retirement: They do not need any additional new investment for retirement apart from their regular EPF contributions. IF their basic salary increases by 5 per cent every year till retirement,they should have an EPF corpus of about Rs 2.21 crore at retirement. Their PPF will yield about Rs 32 lakh if continued with minimum investment and assumed rate of return of 8 per cent. The property at their hometown should yield about Rs 1.26 crore. Existing MF holding (after taking out funds for emergency fund) should grow to about Rs 53 lakh. This will take care of their retirement corpus.
Express tip A buffer for retirement corpus never hurts. If excess funds are available,allocate it to retirement buffer.
Sometimes it looks as if all goals are being met and there is still some surplus income available for investments. In such cases the surplus should be invested with a long term perspective. The corpus thus created can come to aid in difficult situations. These situations can arise in case any of the assumptions like return or salary increase or taxation do not go as assumed in the plan and lead to a shortfall in the target amount.