Express Clinic

Profession: Both are officers with the Government of Maharashtra

Net annual income

(Rs 10.8 lakh)

Status & goals

Srinivasa,38 and Harshlata,37 have a simple lifestyle. They live in Pune with their little daughter Disha (3). They are government employees and are living in employer provided accommodation.

Their main goal is to provide for good education for Disha and her marriage. They wish to purchase a property by the end of the year. Their expenses are well within limits and have invested in a conservative manner in life insurance policies,real estate,bank fixed deposits and gold.

Needed

A plan that will

help them buy a house and plan for the education and marriage of their daughter Disha

Net monthly surplus

Rs 65,000

Findings

Emergency fund: The couple has R1.20 lakh FD and a balance of R 3,000 in savings account. At present this is close to five months of expenses. But the picture will change after they avail of loan at the end of the year. Then this amount will be insufficient.

Health Insurance: Both of them being government officers are entitled to lifelong health care facilities under the CGHS facility. Their daughter is also covered under this till age of 25 or marriage,whichever is earlier..

Life Insurance: Both have three policies each. Two of them are moneyback and endowment policies for which they pay R 70,130 per annum as premium. The third one is a term plan of R 23 lakh each. The term plan covers then till their retirement age. This was a good decision.

Investments: The entire investment portfolio of the couple is into debt and real estate. They own a plot in Bangalore worth R 21 lakh. They have recently been contributing R 1 lakh in their PPF accounts. They also have their contributions towards the GPF account. They have started investing in gold ETF. They are holding about 75 units of gold

Retirement: Being government employees much before 2004,they are covered by the defined benefit pension. This will take a huge load off their financial planning requirement.

Liabilities: Currently they have no liabilities. But they intend to purchase a property by taking a loan of R 40 lakh by the end of 2012. At current rate of interest of 11 per cent for 20 years,the EMI works out to R 41,288 per month.

Recommendations

Emergency Fund:

They need to shore up their contingency fund by R 75,000. They can do this by converting their savings account into a FD linked account. They need to keep the R1.20 lakh FD intact.

Express Tip: Always keep 3-6 months of expenses in ready to use form.

Life Insurance:

Both of them are adequately covered. To be on the safer side,in case income assumptions do not hold,they should increase their life insurance to cover the entire amount of the home loan,by taking another term policy.

Express Tip: It is ideal to take life insurance to at least cover all the liabilities at any point in time.

Health Insurance:

They have excellent coverage from their employer,so they do not need a separate health cover

Express Tip: Guaranteed lifetime health cover from employer is a good facility.

Child Goals:

Disha’s education can be met through a combination of PPF and investment in diversified equity mutual funds. The current PPF balance of R 3.14 lakh can be enhanced by R 50,000 every year,which should give about R 21 lakh when Disha is 17. An additional investment of R 5,800 per month in diversified equity mutual funds should give about R 33 lakh at 15 per cent. Her marriage needs an investment of R 2,600 per month at 15 per cent rate of return in good diversified equity funds.

Purchase of Property:

They have sufficient surplus to service the EMI. They have mentioned that they will be using their GPF balances amounting to R 6 lakh as margin money. They might need to increase this by around R 4 lakh to get a R 40 lakh loan

Express Tip: Home loan EMI should ideally be around 35 per cent of the net income. This is to avoid cash crunch in case of increase in rate of interest.

Retirement: Retirement will mainly be funded by pension received from employer. In addition,they will have the plot which can fetch additional income. They also have sufficient surplus to invest for wealth creation. They can use a combination of PPF and equity oriented hybrid mutual funds to create a wealth corpus

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