Express Clinic

Profession: Private Service

Net annual income

(R 7.2 lakh)

Status & goals

Ajay Srivastava (32) works with an auto parts manufacturing company. He lives in his parental house in Ghaziabad. His parents expired few years back. He does not have much awareness on financial markets and so has been avoiding taking exposure in equities. His nature of work and inadequate insurance protection has raised concerns over his family’s future. He now wants to draw a roadmap to meet his life goals. He stays with Spouse,Radhika (30) and Son,Saurabh (1)

Needed

A financial plan which can guide him in planning his son’s education,contingencies and his retirement needs

Net monthly surplus

R 20,000

Current Investments:

PPF : R 1,00,000

EPF : R 2,00,000

Fixed Deposits : R 1,50,000

RDs : R 1,80,000

Gold : R 3,00,000

Insurance Surrender

Value : R 3,00,000

Findings

Emergency fund: Ajay is maintaining R 1,50,000 in fixed deposits.

Health insurance: Family is covered through a standalone policy of R 2,50,000.

LIFE Insurance: Covered for R 5 lakh through two traditional policies and paying a premium of R 30,000 pa.

Existing Investments: Takes all investment advice from his friends.

Liabilities: Nil

Recommendations

Emergency Fund: He should maintain R 2.5 lakh in this account. Allocate R 1 lakh from FD and a monthly investment of R 5,000 pm in liquid mutual funds towards this goal.

Express Tip: The purpose of an emergency fund is not to provide you with income,nor is it meant to help you build a nest egg. It’s a safety net for meeting living expenses in case of emergencies.

Life Insurance: Ajay’s insurance need is R 1 crore. This can be met through a term plan for which he will have to pay a premium of approximately R17,000 pa. Life insurance for his wife is not suggested.

Express Tip: Pure life insurance is the best tool to provide the dependents of the policyholder with enough money to replace the income in case the policyholder dies.

Health Insurance and Disability cover:

He should enhance his family’s health insurance to R 5 lakh and buy a comprehensive accident policy of R 25 lakh to cover disability risk. All this will cost him approximately R 10,000 annually.

Express Tip: There are certain risks associated with nature of your work. Analyse and buy appropriate comprehensive insurance to cover them.

Child College Education: Allocate PPF maturing in 2025 which will give a corpus of R 14 lakh. To cover up the shortfall,a monthly investment of R 6,000 is recommended in large cap and balanced mutual fund schemes.

Return assumed 12% p.a.

Express Tip: Although the interest is made market linked in PPF,its tax free status still holds good to add in your portfolio.

Child Higher

Education: Allocate surplus lying in RD towards this goal by investing it in equity mutual funds. This will fetch a corpus of R 17 lakh. Remaining fund requirement can be met through monthly investment of R 7,000 in diversified equity MF schemes.

Express Tip: Since education cost is increasing at higher rate than inflation,its necessary that right investment is selected which can yield higher net returns.

Child Marriage:

Allocating existing gold investment will give a corpus of R 36 lakh. To meet the remaining corpus,a monthly investment of R 1,500 is recommended in balanced mutual fund schemes.

Return assumed 12% p.a.

Express Tip: Although gold returns have been lower than equity in the long term,it is an effective diversifier which reduces portfolio risk.

Retirement Planning: EPF will fetch approximately R 2 crore,if continued without any withdrawals till retirement. Surrender existing insurance policies and invest the proceeds in equity mutual funds for this goal. This will give a corpus of R 71 lakh. For balance corpus,a monthly investment of R 4,000 is recommended in selected diversified equity MF schemes.

Return assumed: 12% p.a.

Express Tips: Planning your goals early enables the power of compounding to work for you and helps in reaching it with minimum amount of savings.