Express Clinic

Profession: Market research professional

Net annual income

Rs 11.5 lakh

Other details: Single,no dependents

Status amp; goals

Her goals are: Seeta is a young investor with high disposable income. She is about to marry next year,and financial well being is her biggest concern. She wants to build a corpus to fund her future needs and also for retirement

Needed

A financial plan that will allocate funds properly ensuring good returns and also provide for her goals

Net monthly surplus

Rs 34,583

Current Investments

Stocks: Rs 1.5 lakh

Equity Mutual funds: Rs 1.6 lakh

ULIP premium: Rs 3.05 lakh

Bank FD: Rs 3 lakh

PPF: Rs 70,000 annually

Observations

Seetas has got fascinated by returns from ULIPs and her investment portfolio majorly comprises ULIP Policies from different insurance companies. Although she is contributing a good sum towards PPF,her limited equity exposure through mutual funds and shares is not helping her meet her goals.

Findings
Emergency fund:

Rs 3 lakh maintained in bank FD

Health Insurance: Covered by employer for Rs 3 lakh No additional coverage

Life Insurance:

Rs 5 lakh

Existing insurance cover of Rs 5 lakh

Insurance requirement by Human Life Method 8211; Rs 2.68 cr

Existing Investments:

ULIP policies with annual premium of Rs 3.05 lakh are high risk

PPF investment of Rs 70,000 annually for 15 years.

Exposure in equity through shares and mutual funds is not good enough

Investments are not aligned with any financial goal

Recommendations

Emergency Fund: Maintain emergency funds up to Rs 2.5 lakh which will cover six months expense in any adverse situation. Invest Rs 2 lakh in money market mutual funds and keep the rest in savings accounts or FD.

Express Tip: Unexpected expenses can take a toll on your financial health. An emergency fund can be used to meet such expenses without digging into long term savings.

Buying holiday home: Defer your decision for another three years and allocate Rs 6,164 per month in balanced mutual fund SIPs. Allocate existing investment in MFs towards this goal. This will help in increasing cash payment for your home purchase. Return assumed: 12 per cent p.a.

Express Tip: In a rising interest rate scenario EMIs hit your household budget severely. Keep track and repay as and when you have surplus available.

Health Insurance: Employer health insurance ceases with change in jobs. Buy a standalone policy of Rs 5 lakh for yourself. Add your spouse with same coverage after marriage.

Express Tip: The maximum benefits of health insurance accrue only after 4-5 years continuation with any policy. Hence,buy adequate mediclaim early in your life.

Life Insurance: A term cover of Rs 2.6 cr is recommended from any provider with good credibility and low premium.

Express Tip: Even without any liability,buying term insurance at younger age saves enough money in later years for achieving your financial goals.

Provision for supporting parents:

Since you do not have enough surpluses,invest Rs 5,000 per month in your parents8217; name and increase it as your savings increases. Also,on priority,cover your parents through adequate health insurance policy.

Express Tip: Medical cost is the biggest expense when you grow older. In addition to health insurance covering hospitalisation,specific policies covering non-hospitalisation expenses are very helpful.

Sufficient funds for future expenses: Estimation of future expense,considering inflation,is very important. Identify what you will require and then plan accordingly.

Express Tip: It is necessary that you identify future requirement so that right allocation can be done for achieving these goals.

Retirement Planning: To earn an income of Rs 1 lakh per month taking current expenses and inflation into account,she will need a corpus of Rs 5.86 cr to maintain her current lifestyle,post retirement. Allocate Rs 17,560 per month in mutual fund SIPs in addition to existing equity investment of Rs 1.5 lakh. Return Assumed 12 per cent p.a.

Express Tip: Expenses like children8217;s education and marriage,loan etc. are incurred till retirement. If any of these run thereafter,it eats into your corpus severely. Review your retirement needs periodically.

Existing Investments: ULIPs are costly as compared to term insurance and other investment avenues. Review your investments in ULIPs and exit policies that do not meet your objectives. Align your shares and MF investments with specific goals.

Conclusion

High disposable income at young age,especially when you do not have liabilities,fascinates not only us but agents of different financial products. Since time period is in your hand,any investment for 20-25 years with high returns can throw amazing numbers. It is necessary that you do not get lured by such figures. Identify your needs and plan accordingly. Prudent planning at this age can work wonders during later years of your life.