Express Clinic

annual income

(R9.24 lakh)

Status & goals

Devinder Singh works as a marketing manager with a publishing house. His wife Kamini is working as an administrative assistant with a travel company. The couple lived in a rented apartment till 2012. The purchase of a house exhausted most of their saving and also increased their liability. The couple’s immediate goal is to pay off the home loan besides securing education and marriage of their Kanchan. The couple also wants a retirement plan.

Needed

A comprehensive Financial plan for home loan repayment,retirement,child’s future and

Insurance cover

Monthly Income Rs77,000

Monthly expenses Rs 48,000

Net monthly surplus Rs 29,000

Goals in order of priority

Current Investments

Fixed Deposits: Rs 50,000

PPF: Rs 70,000

EPF: Rs 4,30,000

Insurance Policies (Surrender Value): Rs 1,40,000

Gold: Rs 3,00,000

FINDINGS

Emergency fund: Inadequate emergency fund to cover only one month of expenses.

Life insurance: Total life coverage of Rs 4 lakh with annual premium of Rs 16,000

Health Insurance: Has a family floater mediclaim cover of Rs 2 lakh provided by his

employer

Investments: Exposure to debt and mutual funds but no direct equity investments

Liabilities: Home loan of Rs 12 Lakh

Recommendations

Emergency fund: Amount in fixed deposits is not sufficient. The couple need to save surplus for the next three months to create an emergency fund of Rs 1.5 lakh.

Express TIP: It is prudent to maintain 3 to 6 months of expenses as emergency fund to face temporary uncertainties in life.

Life Insurance: Devinder needs additional life cover of Rs 50 lakh while Kamini should take term insurance of Rs 25 lakh.

Express TIP: Right insurance coverage must be taken by the main earning member of the family ensuring adequate replacement income to dependents in case of any unforeseen eventuality.

Health Insurance: Devinder should take a personal family floater of at least Rs 5 lakh which will cost him approximately Rs 8,000 annually.

Express tip: Employees,especially those working in private sector,should have a personal comprehensive family health cover despite having employer-provided health insurance benefit.

Accident Insurance: A personal accident policy of Rs 50 lakh is recommended for Devinder and Rs 25 lakh for Kamini costing Rs 10,000 annually.

Express tip: It’s important to have adequate disability insurance as permanent/partial disability can jeopardise your regular future income.

Planning for goals

Kanchan’s Graduation (2024 to 2027): The couple should start a Systematic Investment Plan (SIP) of Rs 2,100 per month in diversified equity mutual funds.

Rate of return assumed 12% in diversified equity mutual funds.

Express tip: With education costs increasing more than inflation rate,it’s necessary to invest in right product categories which can yield higher net returns.

Kanchan’s Post-Graduation: To achieve this goal,the couple should start investing Rs 3500 pm in diversified equity mutual funds through SIP route.

Rate of return assumed 12% in diversified equity mutual funds.

Express tip: Diversified Equity Mutual Funds provide high returns over long-term with increasing tenor reducing the risk correspondingly.

Kanchan’s Marriage (2032): The couple should start an SIP of Rs 5,500 per month in equity and gold fund for Kanchan’s marriage.

Rate of return assumed 12% in equity funds and 10% in gold funds.

Express tip: Equity and gold is an ideal combination for children’s marriage goal as it ensures inflation adjusted positive returns along with diversification.

Home Loan Repayment (2018): The couple need to save Rs 12,000 per month in the ratio of 80% debt and 20% equity in mutual funds for next five years.

Rate of return assumed 12% on equity funds and 8% on debt funds.

Express TIP: Working couples should go for joint home loan which not only helps in sharing debt-burden but also allow both partners to claim tax deductions under Section 24 and 80C.

Retirement Planning (2032): EPF,PPF and existing Investments will fund Rs 94.67 lakh at retirement leaving a shortfall of Rs 1.80 crore. For this,the couple should invest Rs 20,700 in diversified multi-cap equity funds which is not possible presently. The couple should invest available surplus at present and keep on increasing the investment as their salary increases and home loan liability is met.

Rate of return assumed: 12% in equity funds

Express TIP: Equity investments always provides inflation beating returns over long term.

Conclusion

Financial discipline,if started early in life,helps in accumulating productive assets which can meet most financial goals. Devinder hopped jobs very frequently in his career resulting in irregular and insufficient income for the family at times. However,a long-term outlook now,followed with discipline and consistency,will still allow the couple to achieve their financial goals.

Plan By Dr Naveen J Sirohi,

Certified Financial Planner,

Member of the Financial Planners’ Guild,India

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