Express Clinic

Profession: Works with a private sector bank

Status amp; goals

Shubha is single. She lives with her 70 year old mother who is partially dependent on her. Her main goal is to save adequately for retirement. She loves to travel and would like to have sufficient funds to travel even beyond retirement. She is worried about cost of healthcare and would like to be fully prepared in case of an emergency both for her mother and herself. If possible,she would like to contribute monetarily to run a school in her village when she retires.

Needed

A financial plan that will force her to save and also provide good returns for future goals and retirement

Net monthly surplus

Rs 19,000

Findings

Investments

Bank balance: Rs 26,000

Fixed deposits: Rs 7 lakh

NSC: Rs 8 lakh

PPF balance: Rs13.57 lakh

Life Insurance coverage

Type of Policy: Moneyback

Risk Cover: Rs 10 lakh

Total premium paid: Rs 50,000 per annum

Health insurance

Employer provides health cover of R3 lakh for Shubha. Her mother is too covered for up to 70 per cent of actual expenses in specified hospitals by her ex-employer. There might be a shortfall in case of major illnesses. Also for her mother,she will need to bear 30 per cent of the actual expenses in case of hospitalisation.

Emergency Fund

Shubha has sufficient liquidity in the form of bank balance and fixed deposits.

Insurance

Shubha has a moneyback policy of R10 lakh at a premium of R50,000 p.a. This is an unnecessary expenditure as she has no dependents.

Investments

Shubha has been investing entirely in debt products. Her choice of instruments has been PPF,NSC and bank deposits. She has used most of her FD as down payment for a property that she has purchased recently. Currently she has FDs worth R 7 lakh and NSC worth R 8 lakh. Being a bank employee,she gets an additional 1 per cent above the normal FD rates.

Retirement

Shubha has recently bought a 2 BHK flat in Navi Mumbai. This is her biggest investment towards retirement planning. She intends to let out one room to paying guests to earn income after retirement. She has a corpus of R 7.5 lakh in her EPF account.

Liabilities

Shubha has a home loan outstanding of R30 lakh for which she pays an EMI of R31,000. She has no other liabilities.

Recommendations

Emergency Fund

There is more than enough money for emergency funding. Shubha should move about R 4 lakh from FD to short-term debt mutual funds. This will provide a better tax adjusted returns in her corpus. R1 lakh should be kept in savings account and the rest in FDs.

Express Tip: Always keep 3-6 months of expenses in liquid form. Single earning member with elderly dependent might need to keep in mind major medical emergencies.

Health Insurance

Shubha can go for a personal health insurance of R10 lakh costing around R10,000 p.a. For long-term health care she can start a SIP of R10,000 pm in a good equity oriented hybrid mutual fund. This will give her sufficient funds R1.43 crore to meet the requirement of 24 hours assistance at current rate of R600 per day,for about 15 years.

Express Tip: Health cover is the most important cover required for any individual.

Life Insurance

Since Shubha has no dependents,she does not need life cover. She has last few years of premium payment remaining,so might continue the policy. This can be earmarked for donation as per her wish. She invests R4,000 in a RD each year to meet the premium payment requirement,which she can continue.

Express Tip: Life insurance is required only to cover the loss of income,so that dependents do not face problems.

Retirement

Shubha needs a corpus of R3.13 crore to meet retirement goals. EPF will provide R1.49 crore; PPF should fetch R66 lakh. The balance can be generated by starting an SIP of R6,500 in a good diversified equity mutual fund.

Express Tip: Retirement is a long term goal. All long term products should be aligned to this goal.

Travel Funding

Currently Shubha uses her LTA and bonus for her regular travels. Post-retirement,she will need a corpus of R78.83 lakh to meet her travel requirements. She can earmark her existing NSC8217;s worth R8 lakh to this goal and ensure they earn at least 8 per cent till she retires. In addition,a SIP of R4,200 in a good diversified equity fund will help her reach the target amount.

Express Tip: Creation of a separate corpus for leisure activities post-retirement can help ease out the worries of living comfortably in retirement.

There is a shortfall of R5,700 towards meeting goals. This can be easily covered by future income increase. She can rent out her flat and offset that income towards the goals and also donate to charity organisations.

Conclusion

Judicious allocation of resources will lead to a tension free comfortable life. Even if there seems to be ample resources,it is better to have a professional view to ascertain that things are going right. It is like having a health check-up done.