June 4, 2012 1:56:45 am
Name: Vikas Garg
Resides in: Dehradun,Uttarakhand
Net annual income
Best of Express Premium
(Rs 8.4 lakh)
Status & goals
Vikas Garg (40) is a professional running his clinic along with spouse (Doctor). Although,they both run their practice successfully,Vikas took a housing loan and a car loan few years back which is becoming a worry as his financial needs are increasing. Expenses are still in manageable limits but savings have reduced substantially. He wants to plan a strategy which can reduce his debt burden and draw a roadmap for his child,Gauravs (8),future
A roadmap which can help reduce debt burden and create a corpus for their kids future and their own retirement
Net monthly surplus
Equity MF : Rs 8 lakh
PPF : Rs 7 lakh
Gold : Rs 7 lakh
FD : Rs 6 lakh
Cash : Rs 2 lakh
Value : Rs 3 lakh
Emergency fund: Vikas maintains R 2 lakh in his savings account at all times
Health Insurance: He is covered upto R 5 lakh through a family floater scheme
Life Insurance: Two traditional insurance policies with total premium of R 50,000 p.a.
Existing Investments: Even though he takes all investment advice from his bank and LIC agent,he has a diversified portfolio of equity,debt and gold.
Liabilities:Running a car loan of R 3 lakh for 5 years and paying an EMI of R 7,000 p.m; a housing loan of R 14 lakh for 20 years and paying an EMI of R 12,000 p.m.
Vikas should maintain a balance of R 4 lakh in his savings account which will meet 6 months expenses in case income stops due to unavoidable circumstances
Express Tip: Since default on any loan can erase your good track record,EMIs should be included in your emergency fund planning.
Vikass insurance need is R 1.27 crore. This can be met through a term plan which will cost him approximately R 30,000 p.a.
Express Tip: Term insurance is the most economical method of providing financial protection to your family in case of any unforeseen happenings and buying insurance at younger age can cost you far less than buying it later.
Vikas should enhance his health insurance to R 10 lakh for his entire family which will cost him approximately R 24,000.
Express Tip: High medical costs can affect your present lifestyle drastically if you and your dependents are not adequately covered by health insurance.
Allocating PPF maturing in 2020 and existing investments in equity mutual funds (MFs) for Gauravs education needs will yield R 38 lakh. For remaining corpus,he should start a monthly investment of R 3,000 in equity oriented large cap mutual funds.
Return assumed 12% p.a.
Express Tip: Even after interest rates are made market linked,PPF still remains an effective tool for long term planning due to its tax free treatment
Switch R 5 lakh from gold to equity oriented MFs which will meet Gauravs marriage goal comfortably.
Express Tip: In long term,returns from gold has been in single digits and so not more than 10 per cent of your investible surplus should be allocated to this asset class.
Prepayment of Loans:
Vikas should utilise amount lying in FD to prepay the car loan completely. This will give him additional surplus of R 7,000 p.m. which should be utilised for prepaying home loan in next 4-5 years.
Express Tip: Home loan is the cheapest loan due its to tax advantage and helps in creation of an asset in the long term
Surrender traditional insurance plans and invest the proceeds in equity oriented MFs which will give a corpus of R 51 lakh. For remaining amount a monthly investment of Rs 9,000 is recommended in a mix of large cap and balanced MFs.
Return assumed: 12% p.a.
Express Tips: Professionals do not have compulsory retirement benefits such as EPF and gratuity and so planning at an early stage is necessary to achieve the desired benefit in the retirement years
Doctors do not have regular income but they do have regular expenses. They generate good surplus in short period but do the mistakes of investing in a single asset class,like real estate. Such situations can be avoided if a discipline is followed in managing their finances
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