Name: Anish Kumar,36
Resides in: Pune
Profession: AGM Marketing in an energy company
Net annual income
(Rs 11.63 lakh)
Status & goals
Anish is staying in a rented apartment but will soon be shifting to self-owned flat. The family’s monthly expenses are not managed prudently and investments primarily consist of mutual funds,direct equities and insurance policies. A major part of his earnings is going towards EMIs. His primary concern is to fund his son’s education and marriage,world tour,retirement and leave a gift for his son.
Anish has Rs 4 lakh as bank balance. His investment in stocks amount to Rs 3 lakh and mutual funds Rs 4 lakh. He has an outstanding home loan of Rs 38.07 lakh and car loan of Rs 4.30 lakh. Anish is having many liabilities in comparison to his investments. He is looking for a luxurious lifestyle after retirement which look a bit difficult right now. Things may look better once outstanding loans are fully repaid and spouse starts working.
He is having insurance cover of Rs 45 lakh but that is still insufficient.
Home loan and car loan EMIs are around 35 per cent of net income.
Major investments are being done in direct stocks and in mutual funds through SIP.
If current savings are used up for home interiors,there will be hardly any amount left for emergency fund. Need to maintain Rs 3 lakh for emergency fund purpose,with Rs 1 lakh in savings account and the rest in short term funds.
Express Tip: Keep 4-6 months emergency fund to prepare for any unforeseen event.
Anish is having sufficient insurance for present needs. He and his wife should continue the cover of Rs 5 lakh for self,Rs 4 lakh for spouse and Rs 2 lakh for child.
Express Tip: Family floater can be a good option to cover entire family.
He requires insurance of Rs 1.61 crore. There is a gap of Rs 1.20 crore,which can be filled by taking a term plan. He should buy a comprehensive accidental policy of Rs 1 crore.
Express Tip: Disability insurance is a must for every bread winner,even more important than health insurance or term plan.
For his son’s education,allocate present savings of Rs 7 lakh in mutual fund and equities. Return assumed: 14 per cent p.a. For son’s marriage,the sum desired cannot be realised looking at current situation. Anish should reduce it to half and start a monthly contribution of Rs 2,200 in balanced mutual funds. Return assumed: 11 per cent p.a
Express Tip: The moment the child receives the first monetary gift,open a PPF account in his name. Do ensure that whatever child receives it should be used only for his benefit.
Anish will require a corpus of Rs 5.13 crore at retirement. He is contributing Rs 72,000 per year in EPF,leading to Rs 2.69 crore at the time of retirement. For bridging the gap he should immediately start monthly contribution of Rs 10,000 in diversified mutual fund through SIP and Rs 5,000 in PPF.
Assumptions: Saving growth increase 5 per cent every year and rate of return 11 per cent p.a.
Express Tip: Continue investing in PPF and EPF till retirement as it will help in achieving retirement corpus. Now you can invest up to Rs 1 lakh per year in PPF.
Anish has goals like world tour and purchase of a property for his son as a gift. All of the current savings and future net cash flows have been allocated for basic goals. The lifestyle goals can only be achieved through additional savings i.e. reducing expenses and increasing cash flow when the car loan is paid or when his wife starts working. He is planning to move to a new house in February and needs R3.5 lakh for interior work. He has this in his bank account,but now he should think of reducing this expense and allocate towards emergency fund.
Express Tip: It is necessary to have a financial plan to prioritise goals and differentiate between needs and wants.