Express Clinic

Profession: Works with a KPO firm

Net annual income

(Rs 7.8 lakh)

Status & goals

The couple have moved to Chennai from Lucknow as Ranjan changed his job. Deepa gave up her job due to health reasons,and plans to work after a few years. A major portion of the couple’s savings have been spent on Deepa’s treatment. They wish to start rebuilding their finances,the main goals being: their child Omkar’s education,marriage and their retirement

Needed

A financial plan that can channel their savings productively to meet stated goals

Net Monthly Surplus

Rs 30,000

Findings

Emergency Fund

There is R 1 lakh in savings account and fixed deposits worth R 2 lakh.

Health insurance

Employer provides a health cover of R 4lakh for self and spouse. There is no personal health cover.

Life insurance

Ranjan has an endowment policy at a premium of R 4,500 every year. His employer provides a life insurance cover of R 20 lakh.

Deepa has no life insurance cover.

Investments

Ranjan has an ongoing SIP in an equity mutual fund of R 2,000 per month. He has been investing in PPF,the current value of which stands at R 85,000. His PF balance is R 2,15,000. Ranjan co-owns a house in Lucknow with his father.

A portion has been let out and being used to support his parent’s income.

Retirement

No particular investment towards retirement.

Liabilities

Ranjan and Deepa are totally debt free.

Recommendations
Emergency fund

Ranjan has sufficient liquidity to meet emergency situations. He should convert his savings account into a fixed deposit linked account. This will earn additional interest. Due to health situation he should keep at least 6 months expenses in liquid form.

This is already available in his bank account and FD’s.

Express Tip: Always keep 3-6 months of expenses in ready to use form. Keep a higher amount in case of health issues in the family.

Health Insurance

This should be top priority for Ranjan and Deepa. They should each have an individual cover of at least R 5 lakh and R 3 lakh for their child. The cost will have to be checked with the insurer as this will be a non-standard premium case.

Express Tip: Shortfall in health insurance might wipe out savings and can lead you to debt. Ensure adequate cover at all times.

Life Insurance

Ranjan requires a life insurance cover of R 2 crore. But due to his health situation,it is not feasible to go in for such a high cover,for he might be refused or may have to pay two to three times the standard premium. He should try for R 50 lakh cover. This will again be a non-standard premium.

Express Tip: It is ideal to take life insurance at a younger age when one is healthy. Deterioration in health will lead to high insurance premiums.

Child Goals

They need to invest R 14,500 per month for 16 years for the education goal and Rs 1,800 per month 24 years for the marriage goal. Funds will not suffice after setting priority of goals.

Express Tip: Start investing towards the goal of your kid’s education as soon as possible to create a corpus in future.

Retirement

If Ranjan invests R 50,000 p.m. in PPF till retirement and earns 8 per cent,he will accumulate R 38.77 lakh. EPF should add about R 1.42 crore (salary increase at 8 per cent). Based on this they will need to invest R 12,500 per month in SIPs to reach their target corpus for retirement. The ongoing SIP should be aligned to this goal. He also has support of his house in Lucknow,which can yield rental income during retirement.

Express Tip: Retirement corpus building is a long term goal. All long term products should be aligned to this goal.

Other observations

The total monthly investments required is about Rs 29,000. Currently R 20,500 per month is available. Their top priority should be getting health and life insurance for Ranjan. After that,the surplus can then be used to allocate towards retirement,son’s education and marriage in that order. Take a loan later for any shortfall in education goal. Once Deepa starts working allocate towards goals in the same order.

Conclusion

If health is an issue,there is nothing else which is as important as shoring up resources for covering the anticipated expenses. Post that,you can look at building up funds for other goals. Prioritise those goals for which raising funds through loans is not possible.