Name: Bhavana Lahiri (38) Resides in: Mumbai Profession: Works in a public sector bank. Net annual income (Rs 3,60,000) Status & goals Bhavana is a spinster and lives in a joint family with her mother,brother and his wife. The main goal for Bhavana is buying her own house and planning for an independent retirement. Staying in a joint family,she has no major expenses. But she aims to plan for an income of at least R 20,000 per month FOR retirement. She has had health issues in the past and does not want her brother to be burdened in any way in case of future expenses on her health Needed A roadmap that will allow Bhavana to create a corpus that will allow her to take retirement when she wants Net monthly surplus Rs 20,000 Current Investments: Provident Fund : R 11.5 lakh Fixed deposits : R 1.5 lakh Equity Mutual funds : R 0.5 lakh Savings Account : R 0.25 lakh Life Insurance coverage Self: R 6.25 lakh Total premium paid: R 30,000 per annum Health insurance Bhavana is covered by her employers group insurance policy for actual expenses in case of hospitalization in select hospitals on their approved list up to R 3,00,000. She has her mother covered as a dependent in the same policy. Findings Emergency fund: Bhavana has fixed deposits worth R 1.50 lakh and a savings account balance of R 25,000. Health insurance: Health insurance cover for self and mother,given by employer is an excellent facility. But she has had health issues in the past,hence she needs to be prepared if there arises a need to spend more than her eligibility. Insurance She does not need life insurance as she does not have dependents or liabilities,which is the primary reason for insurance requirement. She will need to have a life insurance cover at least equivalent to her home loan when she avails of one in future. Investments: Her major investment has been in her provident fund where she has opted for additional contribution through voluntary provident fund (VPF). This has helped her build up a decent balance in her PF account. Retirement: Bhavana has concentrated on her PF account to fund her retirement. She intends to buy a property which she can use in retirement. That property is also intended to provide some additional income till she needs to use it in her retirement. Recommendations Emergency Fund: Bhavana can keep her fixed deposit as contingency fund. Out of this she can keep R 50,000 FD exclusively as emergency fund and the rest can be kept for the house purchase goal. Express tip: The requirement of emergency funds will vary as per the dependents in the family. Too much amount kept in liquid form can hamper other goals. Health Insurance She can consider taking a health insurance for herself for an amount of R 5 lakh. The cost would be around R 7,000 per year. This is specifically considering her adverse health condition,which might need her to spend more than her eligibility in health insurance as given by her employer. She should look for a policy which covers her existing health issues after the mandatory waiting period. Express tip: Ensure adequate health cover at all times. Look for policies which provide best cover considering your health situation. Life Insurance Since Bhavana has no dependents and liabilities,she does not need life insurance. She will need to get life coverage when she has liability in the form of home loan. This would ensure her nominees/heirs are not burdened with her loan in case of an eventuality. She can get a term plan for herself for R 25 lakh. This will cost about R 5,000 per annum. She can continue her existing policy and use the proceeds for supporting her retirement corpus. Express tip: Life insurance is required only in case there are dependents or liabilities. House Purchase: Bhavana will have to build a corpus worth about 20 per cent of the cost of the property for down-payment. She can use Rs 1 lakh from her FD after three years. She needs to start a recurring deposit of R 12,000 per month for three years. At 9 per cent this should yield about R 5 lakh. Her loan amount will depend on her eligibility at the time of taking the loan. At current levels R 25 lakh loan looks difficult both in terms of eligibility and sustenance of EMI. She should try and keep her EMI at 30-40 per cent of her monthly income. Express tip: Stretching beyond ones means to buy a property is not a good idea. EMIs should be kept at lower levels to avoid cash crunch. Retirement: She has been contributing heavily towards Provident Fund. Though this has helped her build a good corpus,it will not suffice to fund her retirement requirements. She should discontinue her voluntary PF contributions. Her current insurance policy will give about R 14 lakh,SIP will give about R 25.6 lakh While PF will accumulate to R 1.27 crore. The balance can be built up through another SIP of R 3,500 in an equity oriented large cap mutual fund. Express tip: PF contributes majorly to retirement. One should avoid dipping into PF for other needs,or withdrawing PF while changing jobs.
