Express Clinic

Profession: Runs a coaching institute

Net monthly income

Rs 75,000

Other details: No dependents,lives with his parents,plans to marry in a year

Status amp; goals

High income,low expenses.

Wants a luxurious lifestyle and fulfill family responsibilities.

No experience with investments. Unclear goals.

Needed

A blueprint to fulfill goals,with a clear focus on life post-retirement.

Net monthly surplus

Rs 65,500

Findings

Bank balance:

Rs 5 lakh earning low interest.

No regular investments. PPF balance

Rs 20,000

Has a life insurance:

Rs 14 lakh Endowment policy amp; pays Rs 40,000 as premium

Has no accident insurance in place.

Health cover:

Rs 2 lakh,

Critical illness cover:

Rs 15 lakh Pays Rs 10,000 as premium.

No retirement plan in place. He is self-employed and is not cushioned by retirement benefits.

Recommendations

Emergency Fund: Rs 1 lakh in savings bank account as liquid funds.

Express Tip: Always maintain emergency fund equal to 3-6 months of monthly expenses to meet up any exigency.

Life Insurance: Go for a term plan after marriage and increase risk cover after starting a family that also covers liabilities taken.

Express Tip: Insurance is required only if there are dependents or liabilities.

Accident Insurance: Buy a personal accident insurance policy for at least Rs 10 lakh with temporary total disablement benefit. The premium for this would be Rs 1,600.

Express Tip: Accident policy is as important as health insurance as it covers temporary and permanent disability,which is generally not covered by other policies.

Health insurance: Consider increasing health insurance cover to Rs 5 lakh.

Express Tip: Adequate health insurance is necessary especially if there is no facility from the employer.

Long Term Goals

Children

Being still single,these goals are at least 20 years away. Needs to take advantage of compounding to build his corpus. Invest Rs 8,000 each month in a good diversified equity fund to finance education for two children. Investing Rs 3,000 per month will provide for marriage expenses. But this investment should be done till the year when the goal is fulfilled.

Retirement

With three decades to go,an investment of Rs 3,000 per month in a diversified equity fund should provide for an assumed monthly expenditure of Rs 15,000.

Upon retirement,Amit can also think of selling his business provided he gets 20 per cent of his last drawn income,for life,with an appreciation of 8 per cent each year. This is an additional cushion.

Short Term Goals

Purchase of SUV and foreign travel:

Start a RD of Rs 46,000 for 3 years. At 9.5 per cent it will yield Rs 18.90 lakh. Also make a FD of Rs 4 lakh at 9.5 per cent for three years from the bank balance. This matures in 2014 giving Rs 5.30 lakh. This will fund the SUV and the first foreign trip in 2014. In later years,draw from the corpus being built with the surplus for the holiday.

Property Purchase

Buying property with Rs 1 crore in 2014 cannot be achieved at current income-expense status after providing for other goals. Amit can sustain an EMI of only Rs 30,000 without down-payment. It can happen in 2019 with down-payment of Rs 15 lakh and EMI around Rs 70,000 for 20 years. Adjust this goal to suit cash flow and interest rates at the time of purchase.

Express Tip: Keep your EMIs below 30 per cent of net take home pay.

Other recommendations

Contribute Rs 70,000 each year to PPF

At maturity extend this for 5 years. This will yield Rs 27 lakh in 2028. Deploy the surplus remaining after providing for other goals in equity mutual funds. The growing corpus will support other goals over the years.

Conclusion

It is ideal to start planning early. More goals can be met with smaller amount of funds if the time available is higher. Judicious investments at this stage will make a very comfortable financial life for Amit.