Express Clinic

Profession: Chest specialist,works with a reputed hospital

Net annual income

Rs 4,80,000

Other details: Lives with parents,no dependents,plans to get married soon

Status amp; goals

Currently his savings and investments include only the cash balance he maintains in his bank savings account. Since he is on a contract,he is not entitled for employee benefits like EPF and gratuity. He has not exposed himself to any kind of risk and therefore not developed any expectation of returns from his savings. He has four goals: a honeymoon trip next year,purchasing a car in three years,planning for his family and his retirement.

Needed

A structured approach to savings and investments to secure his financial future.

Net monthly surplus

Rs 5,500

Findings

Emergency fund:

Rs 2.8 lakh

Maintained in savings bank account and Fixed Deposits.

Health Insurance:

Not covered by any company. No health insurance from employer.

Life Insurance:

Rs 70 lakh

A meagre insurance cover from ULIP.

Insurance requirement by Human Life method 8211; Rs 70 lakh

Existing Investments:

Rs 10,000 p.a

Investment in ULIP with premium of Rs 10,000 per anum.

Investment in LIC money back plan with premium Rs 20,000 per anum.

Bank recurring deposit of Rs 2,000 per month yielding return of 7.5 per cent per anum,compounded quarterly.

Recommendations

Emergency Fund: Maintain Rs 75,000 as emergency fund. Invest Rs 50,000 in money manager funds and keep the balance in savings. Increase it proportionately as you get married and as liabilities get added.

Express Tip: Emergency Funds are created to meet any immediate contingencies in future. Keep funds in the highly liquid instruments like FDs,Money Market Funds and Savings A/C.

Honeymoon Expense: Allocate existing recurring deposit investment for this goal. Avoid investing this sum in any high risk instrument. Return Assumed: 6 per anum

Express Tip: Expenses like these should be planned only when you have provided for your long term goals.

Buying a Car:

Defer this decision by another two years till your financial situation stabilises. Investment to be allocated in systematic investment plans SIPs in mutual funds is Rs 2,000 per month. This will provide for maximum down payment.

Return Assumed- 12 per anum

Express Tip: Buying a car is a lifestyle decision. Resist your temptation and purchase a car that is most economical to you.

Planning for the future:

Although the decision is still ahead,rise in cost of education and inflation requires a good period of time for your money to grow. Current expenses are too high to save for your long term goals. Reduce unnecessary expenditure and utilise savings towards your financial goals. Start building a nest through SIPs in a mutual fund and PPF account.

Express Tip: Even when family planning is some years ahead,saving for it early can help you in reaching the desired corpus comfortably.

Health Insurance:

Buy a standalone health insurance for Rs 3 lakh each.

Look at features like maternity expenses which you will have to bear going forward.

Express Tip: Health insurance should be the priority after life insurance. Purchase as soon as you start working and enhance it as and when your family size increases.

Life Insurance:

A term cover of Rs 70 lakh is recommended from any life insurance company with low premium rates. Although online insurance is cheap,one should evaluate companies on different parameters to avoid any dissatisfaction later.

Express Tip: Term insurance premium rates depend highly on age. Buying one in the initial years can save you enough to create a good corpus in longer term.

Retirement Planning:

As per expense replacement method,he will need a retirement corpus of Rs 4.3 crore to meet expenses for 20 years post retirement.

Investment to be allocated in SIPs is Rs 15,747 per month

Return Assumed: 12 per anum

Express Tip: The longer is the horizon for retirement the higher will be the corpus required due to inflation effect. Saving early is the only option in reaching the desired goal.

Existing Investments:

Money back plans are probably,the costliest plans as they provide benefits at every specified interval during the policy term. With net return of 4-5 per cent,they are unable to beat inflation. Hence,stop contributing and convert your policy to paid up. ULIPs are good if the product has low cost structure and your time horizon is more than 15 years. If otherwise,surrender and invest proceeds in the right instruments. Bank RD should be considered after taking tax into consideration and only for very short term goals.

Express Tip: Invest your savings very wisely. A choice of wrong instrument can make your financial goal unachievable.

Conclusion

Resist the temptation to spend everything during early years of your life. Along with help from a financial planner,read and understand yourself how money market works as all your investments,savings and insurance go through this route.