Express Clinic

Profession: Cost accountant

Annual income

(Rs 14.34 lakh)

Status & goals

Ajay Kumar is the sole earning member for a family of four. He has a daughter,Charu and a son Rachit. Ajay is a cost accountant working in a private company in Pune. At present,he and his family stay in Pune. Ajay wants to plan for a comfortable retirement but he would also like to provide the best education and good marriage for his children.

Needed

He wants a systematic financial plan to avoid any pitfalls in the future. And enough corpus for his retirement.

Net monthly surplus

Rs 21,100

Current Investments

Savings Bank Balance: Rs 2.82 lakh

EPF: Rs 5 lakh

Infra Bond: Rs 40,000

Gold ETF: Rs 50,000

Second Home: Rs 40.50 lakh

Current liabilities

Home Loan I: Rs 23.21 lakh

Home Loan II: Rs 22.5 lakh

FINDINGS

Emergency Fund: He has maintained emergency fund in bank savings account equal to 3 months expenses. He needs to shift the money to bank FD or liquid plus fund of mutual fund.

Life insurance: He does not have adequate life insurance.

Health insurance: He and his family are not fully covered for health insurance.

Investments: He has not started any investment from existing surplus.

Provident fund: He has a good balance in EPF.

Recommendations

He needs to keep Rs 2.82 lakh either in bank fixed deposit or liquid plus fund and maintain it as an emergency fund.

Express tip: Emergency fund carries utmost importance and helps in managing contingencies like job loss or disability.

Life insurance: As per need-based analysis,Ajay should be having an additional life insurance coverage of Rs 1.25 crore. He has bought five insurance plans in his name out of which three are traditional plans and two are ULIPs. He is advised to surrender his LIC ULIP plan. He can continue his other three LIC plans as debt portfolio. He is advised to continue his ICICI Pru life ULIP plan but is advised not to pay further premium in the plan.

Express tip: Take online term plan of 1.25 crore at the earliest.

Health insurance: He should buy individual health insurance plan of Rs 3 lakh assured for each member of the family. Additionally,buy top up health insurance of Rs 5 lakh with deductible of Rs 3 lakh for each member of his family. It would cost him around Rs 22,600 p.a.

Express tip: One should not be dependent on only employer provided policy. It’s better to buy a separate coverage in such a young age to avoid proposal for fresh health insurance being rejected due to any health issues later on.

DISABILITY INSURANCE: He should also buy critical illness and accidental disability insurance coverage of at least Rs 50 lakh and Rs 25 lakh sum assured respectively. The premium for this would be around Rs 28,600 p.a.

Loan planning: He should sell the second home as 82% of his portfolio is in real estate which is too high and repay the home loan of Rs 23.20 lakh. After taking into account indexation,he will not be required to pay any long-term capital gain tax. He should also utilise Rs 7 lakh from the sale proceeds to partially payoff the home loan on self occupied home and get the EMI reduced.

Daughter’s graduation: His LIC Jan Raksha policy is allocated to this goal,which will give him maturity proceeds of approximately Rs 5.50 lakh. Additionally,he is required to start monthly investment of Rs 14,500 for 8 years in balanced fund of mutual fund to accumulate the balance corpus. HDFC Prudence Fund is recommended.

Express tip: When the goal is long term,one should increase the allocation in equity and invest little in safer instruments.

Son’s graduation: Surplus of sale proceeds of second flat of Rs 4.70 lakh is advised to invest in the ratio of 90% in equity via mutual fund and 10% in debt. Additionally,he is required to start monthly investment of Rs 10,500 per month for 12 years in the ratio of 90% in equity via mutual fund and 10% in debt to accumulate the desired corpus. Franklin India Bluechip Fund and Templeton India Income Builder are recommended.

Daughter’s marriage: (2028):

Gold Investment of Rs 50,000 and maturity proceeds of Komal Jeevan plan is allocated to this goal. Additionally,he has to start fresh monthly SIP of Rs 6,000 in the ratio of 90% in equity and 10% in debt to accumulate the desired corpus. He should start SIP of Rs 5,500 in equity Fund and Rs 500 in Gold Fund. Reliance Equity Opportunity Fund and SBI Gold fund are recommended.

Son’s marriage (2033): Maturity proceeds of second Komal Jeevan plan is allocated to this goal. Additionally,he has to start fresh monthly SIP of Rs 4,000 in the ratio of 90% in equity and 10% in debt to accumulate the desired corpus. As all his assets and surplus are utilized for achieving the life’s major goals and there is no surplus available to fund this. He should start investing for this goal in future when there is increase in income.

Express tip: When the goal is long term,one should increase the allocation in equity and invest little in safer instruments.

Retirement planning: (2033):

He requires inflation-adjusted corpus of Rs 3.75 crore at the time of retirement at age 60. His EPF will give him a corpus of Rs 2 crore if he continues to work till retirement and continues the contribution. His ICICI Pru ULIP plan is also allocated to this goal. Surplus of sale proceeds of second flat of Rs 5.80 lakh is advised to invest systematically in equity mutual fund to accumulate the balance corpus. Additionally,he has to start fresh monthly SIP of Rs 7,500 in the equity fund to accumulate the desired corpus. ICICI Prudential Discovery Fund and Birlasunlife’s Frontline Equity Fund are recommended.