Name: Neeraj and Monika Sharma,35
Resides in: Dehradun
Profession: Neeraj -senior manager & Monika -operations manager
Net annual income
Other details: The couple have a son Arnav,5
Status & goals
Though Neeraj is quite satisfied with his job,income and growth,he still feels that the future is uncertain and wants to secure his finances. He is more concerned about his retirement and also wants to provide good education to his child..
A financial plan that can provide for their goals and assure a good income after retirement.
Net monthly surplus
Savings Bank Balance Rs 4 lakh
Fixed deposits Rs 10 lakh
Mutual Funds Rs 2 lakh
ULIPs Rs 4 lakh
Idle money is lying in saving bank accounts as emergency funds.
The ULIPs they have does not provide adequate insurance coverage.
Poor Asset Allocation
Most of his investments are lying in safe investment vehicles,thus compromising on growth aspects
He expects his income to grow by 10 per cent year-on-year.
He has a loan of Rs 16.76 lakh with a current balance of Rs 7 lakh at a floating rate of 9 per cent. He wants to repay as soon as possible.
Neeraj has two child plans and two pension plans. He is afraid of stock market volatility and so avoids increase in equity mutual funds allocation. He strongly believes that if properly managed,equity can provide good returns.
Emergency Fund: Maintain Rs 2 lakh in savings account,as emergency fund to cope up with any kind of emergency.
Express Tip: Don’t keep more than 3-4 months of expenses in emergency fund. Excess amount here will hamper long term growth of overall portfolio
Health Insurance: Buy a personal health cover of at least Rs 5 lakh for each family member,over and above employer’s cover. To start with you can go for floater policy but convert it to individual policy soon. Buy it along with critical illness rider. This should cost around Rs 17,400 per annum.
Express Tip: To have cover,where employer insurance may prove to be inadequate,you need to have separate health insurance. Employer cover ceases when you leave your job.
You should buy a term insurance policy with sum assurance of at least Rs 1.6 crore. Get Monika a sum assured of Rs 75 lakh. The total premium outgo in this case will be Rs 39,070 for online term plan.
Express Tip: Insurance helps in covering responsibilities and liabilities of the bread earner of the family,in case of his sudden demise.
Neeraj should buy an accident insurance policy of Rs 1 crore. This should also cover temporary total disability. Also buy Monika coverage of Rs 50 lakh. This would cost Rs 18,800 per annum.
Express Tip: Accident insurance is as important as life insurance,since accident policy covers temporary as well as permanent disability
Allocate Rs 1.50 lakh out of existing saving bank account and park it into an equity diversified mutual fund. Also start a SIP of Rs 28,000 per month in 2-3 good equity mutual funds. You should also open a PPF account and save Rs 7,000 per month in it.
Express Tip: Allocate more towards equity if goal is more than five years away.
Start saving Rs 4,000 a month in PPF and Rs 15,000 in mutual funds SIP. Increase this amount by 10 per cent every year.
Express Tip: Retirement provision should be your first priority in order to maintain your current lifestyle.
Home loan repayment
Cash flow completely supports EMI payments. You can use the money lying in bank FDs for this purpose. Before closing do factor in tax advantages.
Express Tip: House loan helps in purchasing an appreciating asset and also provides tax benefits. While closing loans,consider house loan last.
Review your ULIP policies and check out their suitability in your profile. It’s always better not to mix insurance with investment. Understand the terms and conditions and take a wise decision.
Express Tip: Never buy insurance plans under emotions. There’s nothing special in child plans and retirement plans.
Financial planning in the young age will always prove beneficial in the long run. It will enable better management of your finances and help you to adopt a systematic approach