Express Clinic

Profession: Senior Manager in an MNC

Net annual income

Rs 11 lakh

Status amp; goals

Rishi is a Pg in Management and recently joined an MNC. he feels that life is full of uncertainties and one should always be ready for the unexpected. So he wants to start his financial life with proper planning. He does not have any dependents and neither does he want himself to be dependent on anyone. Saving for his marriage,buying a big car,comfortable retirement are some of his goals. He also wants to gift his parents an international trip

Needed

A roadmap to start investments at this young age so as to create a secure financial future and be able to fund foreign trip for parents

Net monthly surplus

Rs 70,000

Current Investment

Savings account: Rs 2 lakh

Findings

Emergency fund:

He has not started investing the surplus,so whatever he saves is in savings account.

Life Insurance:

He doesn8217;t have any life insurance cover.

Health insurance:

His father has bought him an investment cum health insurance plan.

Investments:

He8217;s yet to start with his investments and he8217;s also ready to compromise safety to growth.

Liabilities:

He doesn8217;t have any kind of liability.

Recommendations

Emergency fund:

He should keep only R 60,000 in his savings account and maintain it as emergency fund.

Express TIP: To manage emergencies related to health or job loss,one should keep 3-6 months of expenses in liquid form.

Life Insurance:

Rishi has no financial dependents as of now,so he does not require any kind of life insurance policy. But he should surely buy an adequate cover,once he gets married.

Express TIP: Life insurance is only for those who are in debt or have financial dependents.

Health Insurance:

Rishi should buy an Individual comprehensive health insurance policy with sum assured of at least R 5 lakh,and if his parents are not covered then he should get them one as well. The premium outgo for him would be R 6,000.

Express tip: Investment-cum-insurance policies neither provide one with enough cover nor they are good for investments.

Accident Insurance:

Rishi should buy a comprehensive accidental insurance policy with temporary total disablement benefit of at least R 1 crore sum assured. The premium for this would be around R 12,000.

Express tip: This is a must have insurance policy and is not depending on having dependents. This is also called income assurance and covers disability.

Marriage 2015:

He should allocate the balance left in savings account after emergency fund and start saving R 25,000 pm for this goal. He should opt for dynamic bond fund for lump sum investment and bank recurring deposit for monthly savings

Rate of return assumed 8 post tax

Express TIP: One should take advantage of the interest rates while selecting any debt instrument to invest in. Avoid pure equity investments for goals less than 3 years.

CAR 2016:

Start investing R 8,600 in a balanced mutual fund with 50 per cent 8211; 65 per cent of equity exposure for this goal.

Rate of return assumed is 10 post tax.

Express TIP: It is always better to save first and then spend. Taking a loan for depreciating asset is never an advisable option.

Holiday Trip for Parents 2020:

Invest R 5,000 pm with equity debt allocation of 80:20 to save for this goal. For equity you may select equity mutual funds and for debt you may go with bank recurring deposits.

Rate of return assumed is 11.2 post tax.

Express TIP: Following asset allocation is the best way to invest. This will help you in allocating investments among different asset classes thus distributing risk.

Retirement Planning 2043:

In this goal the provident fund savings which Rishi will accumulate over a period of time will play a big role,but since this is the start of his career,we have not considered any savings. Rishi should start investing R 5,000 per month with the asset allocation of 80:20 in favour of equity: debt. He should use diversified equity funds for equity allocation and PPF and EPF for debt allocation as investment tools for achieving this target.

Rate of return assumed 14 in equity funds and 8 in PPF

Express TIP: Compulsory savings under EPF plays a major role in accumulating decent corpus for one8217;s retirement,so one should not withdraw it early to satisfy other desires.

Conclusion

You are never too young to start planning for your goals. Starting early and sticking to sensible long term savings plan helps in setting the foundation for sound economic decision making,throughout the life. Having a clear goal and using your money sensibly will never let you fail in your financial life