Tags:
Journalism of Courage
Name: Manoj Verma
Resides in: Delhi
Profession: Service in a stock broking company
Net annual income
Rs 9 lakh
Status amp; goals
Manoj Verma 40 is working as a Senior Wealth Manager with a stock broking firm and lives with Spouse Shalini 38 and Son Gaurav 8. His nature of work has made him well aware about financial markets. He has been taking exposure in various asset classes and has adequate life insurance. He is increasingly concerned for his son who is a thalamic patient and so he wants to draw a financial roadmap for his family to have a planned future
Needed
A financial plan which can help him create a corpus which will take care of his child,family protection and his retirement needs
Net monthly surplus
Rs 25,000
Current Investments:
Equity : Rs 8,00,000
PPF : Rs 5,50,000
EPF : Rs 8,00,000 Cash : Rs 4,00,000
FD : Rs 2,00,000
Gold : Rs 3,00,000
Insurance
Surrender Value : Nil
Findings
Emergency fund: Manoj is maintainingRs 2 lakh in fixed deposits and Rs 3 lakh in savings account.
Life insurance: Covered for Rs 1 crore through a term insurance plan and paying a premium of Rs 25,000 pa.
Health Insurance: Family is covered through employer provided medical cover for Rs 3 lakh which excludes sons illness. Self and spouse are covered through a standalone policy of Rs 4 lakh.
Existing Investments: Takes all investment decisions himself.
Liabilities: Nil
Recommendations
Emergency fund: He should maintain Rs 3 lakh for emergency requirements. Allocate Rs 2 lakh from FDs to money market mutual funds and continue with Rs 1 lakh in savings account.
Express Tip:: Emergency fund should be estimated on the basis of meeting your expenses for 4-6 months,in the absence of any regular income.
Life Insurance:
Manoj requires an insurance cover of Rs 1 crore. Since he is already covered for that amount,any additional insurance cover is not recommended.
Express Tip: Buying a term insurance early in life can benefit you in terms of lower premium outgo and helps avoid any additional premium liability which may arise due to adverse health factors setting in with age and stress.
Health Insurance:
No enhancement in health cover is recommended at present. Since most companies do not cover thalassemia patients,it will be difficult for Manoj to cover his son for this illness. He needs to create a separate health fund for his son to take care of any future medical expenses related to his illness.
Express Tip: Some health insurance companies exclude certain pre-existing illnesses completely. One should check the exclusions and terms before signing for any health insurance policy
Child College Education:
Allocating equity investment towards this goal will fetch Rs 22 lakh. For remaining fund requirement,a monthly investment of Rs 4,000 is recommended in balanced mutual funds.
Return assumed 12 p.a.
Express Tip: Cost of child education is ballooning. To counter it,one needs to prepare early in life so that it does not strain your finances later.
Child Marriage:
Allocating existing gold investment will give a corpus of Rs 15 lakh. To achieve the remaining corpus,a monthly investment of Rs 5,000 is recommended in a large cap equity mutual fund.
Return assumed 12 p.a.
Express Tip: Physical gold is a viable option when you want to gift it to your children. For investments purpose,e-gold or ETF are more cost effective than physical gold.
Creating Health Fund for Child:
Allocate PPF maturing in 2014 towards this goal. For meeting immediate needs,Rs 3 lakh from savings account can be utilised.
Express Tip: Apart from recurring expenses,illness like Thalassemia can throw up higher lump sum requirement. Creating an adequate health fund helps in reducing financial worries related to healthcare costs.
Retirement Planning:
EPF contribution will fetch approximately Rs 1.25 crore,if continued without any withdrawals till retirement. For achieving the remaining corpus,a monthly investment of Rs 8,000 is recommended in balanced MF schemes and an additional Rs 7,000 pm in diversified large cap equity mutual fund schemes.
Return assumed: 12 p.a.
Express Tips: To avoid stressful years in retirement,one needs to plan early as it also requires allocating lesser amount of investment on a regular basis.
Conclusion
Each individuals financial situation is unique. Any strategy which has worked for others may not work for you.Financial planning helps in analysing your current situation and identifying the gaps which have to be filled to meet your objectives
