Express Clinic

Profession: Manager with an export firm

Net annual income

(Rs 6 lakh)

Status & goals

Raghvinder has been spending lavishly,resulting in low savings. it was only after his mother was hospitalised,did he realise importance of securing his financial future

Needed

A financial plan that will force him to save and also provide good returns for future goals and retirement.

Net monthly surplus

Rs 20,000

Current investments

Equity mutual funds – Rs 10,000

Life insurance – Rs 50,000

Retirement savings – Rs 50,000

Cash – Rs 75,000

Findings
Emergency Fund

Rs 75,000 maintained in savings bank account.

Health insurance

Rs 1 lakh from employer covering his mother as well.

Life Insurance

Existing insurance cover of Rs 8 lakh. Insurance requirement Rs 1 crore.

Existing Investments

Life Insurance premium of Rs 50,000 with cover of Rs 8 lakh is a costly affair. SIP in equity MF is a good start but should be aligned with life goals. EPF will meet retirement goal comfortably if contribution increases continuously.

Investments are ad-hoc which poses a big risk of not meeting life goals.

Recommendations
Emergency Fund

Increase emergency funds up to Rs 1.5 lakh which will cover expenses for six months in the case of any adverse situation. Invest Rs 1 lakh in money market mutual funds and keep rest in savings accounts or fixed deposits.

Express Tip: Emergencies arise unexpectedly. You cannot avoid them,but be prepared by making adequate provisions.

Buying a Car

Investment to be allocated in a bank recurring deposit is Rs 11,640 per month. The return assumed is 7 per cent per annum.

Express Tip: These are life goals which can be deferred easily if any liability arises. Review your financial situation carefully before making a decision.

Buying a Home

Allocate Rs 3,283 per month in a mutual fund systematic investment plan. The rate of return assumed 12 per cent pa.

Express Tip: When buying a house,always try to maximise your down payment. This would help offset the burden of high EMIs.

Health Insurance

Buy a standalone health insurance coverage of Rs 3 lakh for yourself and your mother.

Express Tip: Mediclaim is a major expense in old age and also unavoidable. To save yourself from incurring huge expense,take an appropriate health insurance cover.

Life Insurance

A term insurance of Rs 1 cr is recommended which will protect your dependents financially in case of any eventuality.

Express Tip: Term insurance is the cheapest cover to buy. It should be enhanced in case liabilities increase.

Retirement Planning
As per the expense

replacement method he will need a corpus of Rs 3.7 crore,assuming that he would maintain his current lifestyle,post-retirement. EPF can meet this goal partially if contribution continues to grow. However,to meet the entire corpus,an investment of Rs 17,000 per month will be required assuming return of 12 per cent per annum.

Express Tip: Retiring at desired age requires completion of all goals. If liabilities continue to remain,then deferring the retirement age would be the most viable option.

Existing Investments

A life insurance policy is a costly mistake if bought without understanding the terms and conditions. Withdraw such policies as they will not yield the desired result. A better and more prudent approach would be to utilise savings for buying term insurance and investing towards other life goals. Align investments in equity mutual funds towards each goal in order of priority. Increase allocation towards equities through mutual fund systematic investment plans and invest in other long term instruments such as Public Provident Fund. Prudent investment planning always begins with proper asset allocation.

Express Tip: Identify your goals before moving towards investment planning. Adhoc investments lead to poor performance and mismanagement.

Adequate Funds For Financial Well-Being

Review your financial situation periodically and enhance your allocation if there is a change in financial goals.

Express Tip: Life goals change when situations such as marriage,children,job change arise. Review and monitor your finances periodically,as it is necessary to accommodate such changes in your financial life.

Conclusion

As a youngster it is necessary that you create discipline with your savings and investment. Habits developed at this stage will decide the course of later years of life when you add on dependents and liabilities. Set priorities and work towards them. Avoid living lavishly on loans or credit cards as it will eat into your savings.