Express Clinic

Profession: Manager with UP State Transport Corporation

Net annual income

(Rs 5.4 lakh)

Status & goals

Rajneesh is a government employee availing employer provided benefits to the maximum. Government accommodation and other non-monetary benefits are helping him to maintain lower expenses. A guaranteed pension post retirement will ensure a lifelong fixed income for himself and spouse. With some awareness on personal finance,he has been diversifying his investments lately. He contributes his savings more to growth assets to meet his son Gaurav’S (8) future needs

Net monthly surplus

Rs 17,666

Current Investments

ePF : Rs 6 lakh

ppf : Rs 8 lakh

Equity MF : Rs 1 lakh

FD : Rs 3 lakh

Cash : Rs 1 lakh

Insurance- : Rs 5 lakh

Surrender value

Findings

Emergency fund: Rajneesh maintains R1 lakh in his savings account at all times .

Health Insurance: Up to R10 lakh family cover through his employer.

Life Insurance: Two traditional insurance policies and a term plan of R50 lakh with total premium of R50,000 p.a.

Existing Investments: He makes all his investment decision by himself with little help from his friend who is an insurance agent.

Liabilities: Running a housing loan of R10 lakh for a period of 20 years since the year 2000 through his employer scheme and paying an EMI of R6,000 per month.

Recommendations

Emergency Fund:

Rajneesh should enhance his emergency fund to R1.8 lakh

Express Tip: An emergency fund is an easily accessible stash of money for use only in cases of emergency and not for buying a new car,LCD or repairing your bathroom.

Life Insurance:

Rajneesh’s insurance need is R 51.20 lakh. No further insurance recommended

Express Tip: A life insurance is a financial protection for your family to maintain same standard of living in case of any unfortunate events.

Health Insurance:

Rajneesh should take a standalone health insurance of R5 lakh as even state government schemes have many limitations in case of specific treatments and hospital network

Express Tip: Sub-limits restricts your insurance claims. A separate standalone medical cover can provide additional support in case hospitalisation costs exceed the usual limits.

Gaurav’s school education:

Allocate your PPF which matures in 2016 by extending it for another five years. This will give him R 22.8 lakh which will easily meet this goal. Return assumed 8 per cent p.a.

Express Tip: Fixed Income assets like PPF provide the best guaranteed returns in a tax efficient manner and are ideal for long term goals.

Gaurav’s higher education:

Switching R 2 lakh from FD to equity MF will generate approximately R 7.79 lakh over 10 years. Remaining corpus can be met by a monthly investment of R 9,369 in selected MF schemes. Return assumed 12 per cent p.a.

Express Tip: With low investment requirement and diversification benefit,Equity MF is a viable route for small investors to plan their life goals.

Gaurav’s marriage:

Exit traditional insurance plans and invest proceeds in equity MF. This will help accumulate Rs 43.06 lakh over 19 years. For remaining corpus,a monthly investment of R 2,000 is recommended in a balanced MF scheme. Return assumed 12 per cent

Express Tip: Time horizon of investment and your risk appetite plays a major role in selecting the right asset class for meeting your objectives.

Retirement Planning:

Rajneesh will receive a pension of approximately R30,000 p.m. from the government. His EPF and gratuity will fulfill the remaining corpus requirement. No investment is recommended.

Express Tip: Forced savings and fixed compounding returns makes EPF a great tool for your retirement planning.

Conclusion

The benefits in a government job are many. But there are some limitations as well which should be well understood. Supplementing benefits with prudent financial planning can ensure reaching your desired life goals comfortably