Name: Pratyush and Shraboni Saha
Profession: Pratyush,36,FMCG co and Shraboni,32,school administration
Net monthly income(combined)
( Rs 1.5 lakh )
Status & goals
Pratyush and Shraboni have recently moved into their own home in an upcoming area in Bangalore. They wish to enrol Piyush in an IB curriculum school from next year. This will entail a big expense,especially after the home loan that they have taken. They want to check their preparedness for this and for future education expenses. They also want to look at their retirement corpus
A plan that would allow them to create an investment corpus which will take care of their financial goals
Net monthly surplus
Bank Account : R 1 lakh
EPF: R 4.5 lakh (Pratyush),
R 1.2 lakh (Shraboni)
PPF: R 5 lakh (Pratyush,
R 2 lakh (Shraboni)
Mutual Funds: R 3 lakh (Combined)
Fixed Deposit:R 3 lakh (Combined)
Current Liabilities: Home Loan:R 60 lakh (Combined)
They have about 4 months requirement in the form of cash in bank and fixed deposits. This seems to be sufficient for contingency.
Pratyush: Health cover from employer for R 5 lakh covering self spouse and child. No personal health insurance. Shraboni: NIL. Health insurance seems insufficient. There might be a problem if Pratyush changes his job.
Life Insurance coverage
Pratyush: Term plan R 50 lakh. Premium Rs 20,000 per year & R 15 lakh risk cover under group term insurance.
Shraboni: Endowment policy R 3 lakh with a premium of R 15,000 per year.
Most of the investments are debt oriented. There is a small portion in mutual funds. This strategy will not suffice to meet his goals.
There has been no focussed approach towards retirement planning. Investments have been made on an adhoc basis without giving any importance to the long term requirements.
They need to maintain minimum of R 2 lakh as emergency fund in the form of R 50,000 in savings account and the rest in short term fixed deposit or mutual fund short term plan.
Emergency Fund: There is sufficient liquidity to meet contingencies.
Express Tip: Always keep 3-6 months of expenses in ready to use form. Keep a higher amount in case of health issues in the family.
They need to take an insurance cover of at least R 5 lakh for each of them and R 3lakh for their son.
Express Tip: Personal health cover should be taken inspite of employer provided health cover. Any change in the corporate HR policy may change the cover you get.
Major liability of home loan is already covered. To meet the goals and live life without compromising on lifestyle,Pratyush needs to take a term cover of R 1.4crore. Shraboni does not need any additional life cover. She may continue her existing policy as the outgo is not huge and there are few years left for maturity.
Express Tip: Term cover provides the best solution for covering loss of income due to death. It is the cheapest and the best form of insurance.
An investment of R 34,300 per month for 11 years at 15 per cent is required to meet Piyushs education funding. For his marriage goal,an investment of R 4,000 per month is required for 22 years. Both these can be invested in diversified equity mutual funds
The couple requires building a corpus of R 5.21 crore towards retirement. PPF will contribute R 38.33 lakh,EPF combined will contribute Rs 4.34 crore. The balance accumulation required is R 48.27 lakh. This can be attained by investing R2,400 per month in diversified equity mutual fund.
Express Tip: EPF contributions can build up to huge amounts over a period of time due to the compounding effect. Do not withdraw your EPF balance while changing jobs
The investment requirement to meet all goals is about R 41,000 per month,more than the current surplus. Besides there will be the added expense of term insurance cover. The way out is to prioritise. They can opt for investing full amounts towards retirement and marriage goals. As income grows,they can allocate more funds to education goal and meet shortfall through education loan.
Goal prioritisation can be based on availability of loans. Education loans are cheaper than personal loans,hence funding goals like marriage should take precedence over educa-tion,if there is a resource crunch.