Express Clinic

Profession: Doctors employed in a private hospital

Annual income combined

Rs 26.40 lakh

Status amp; goals

Dr Mahesh and Dr Meena are working in top corporate hospitals in Mumbai. They want to run a check on their finances as they are not sure of where they stand today,especially since they have been doing ad hoc investments as and when they had funds available. They have two children Rutuja 8 and Rahul 4. Their basic goals are education for both their children and their own retirement planning. They would also like to plan for foreign holidays,though they have no budgets or locations in mind as of now.

Needed

Their basic goals are education for both their children and planning for their own retirement.

Net monthly surplus

Rs 77,000

Current Investments:

Property residence: Rs 1 crore

Property inherited: Rs 2.4 crore

EPF Mahesh: Rs 2 lakh

EPF Meena: Rs 50,000

NSC: Rs 8 lakh

Fixed Deposits: Rs 6 lakh

Stocks: Rs 25 lakh

Savings accounts: Rs 5 lakh

Other Annual Expenses:

Life Insurance Premium: Rs 2 lakh

Health Insurance Premium: Rs 15,000

FINDINGS

Emergency Fund

They have excess liquidity in the form of savings bank balance of Rs 5 lakh and fixed deposits worth Rs 6 lakh.

Health insurance

The expenses on routine health care are minimal as both of them are doctors and are able to manage the familys requirements. Health insurance is on the lower side.

Insurance

Their life insurance policies are a combination of savings oriented and pure risk polices. The premiums are manageable in the current and future cashflow.

Investments

Both Mahesh and Meena have inherited one property each from their parents. The combined current valuation is Rs 2.4 crore. Both these properties are vacant currently. This forms 83 per cent of their current investment portfolio. There has been no planned approach in investing hence the investments are mostly in stocks and some in NSC.

Retirement

There has been no focus on retirement planning. Both of them withdrew their PF from the earlier employer and used it for the down payment of their current property and its interior decoration. They are considering their inherited properties primarily for their retirement.

Liabilities

They have recently moved into their new residence. There is a home loan outstanding of Rs 75 lakh on this property. The rate of interest is 10.5 per cent and the period is 15 years.

Recommendations

Emergency Fund

Considering their 6 months regular expenses and EMI,they need a corpus of around Rs 8.5 lakh. They can move Rs 2.5 lakh into a liquid plus fund to create a second tier emergency fund. The rest can continue in the form of a flexi deposit linked to the savings account. The FD of Rs 6 lakh can also be split in a similar manner upon maturity. This will take care of their insurance premiums too.

Health Insurance

They need to have a higher health cover. An individual cover of Rs 5 lakh and an additional family floater policy of Rs 15 lakh would be good. The cost would come to about Rs 45,000 per annum.

Life Insurance

Considering their assets,liabilities,earning capacity and goals,they do not need any additional life insurance cover. They can continue with their existing policies although the returns are on the lower side,as there is no major impact on the exiting cash flows or future goals of the family.

Express tip: If there are sufficient assets or income sources to cover all liabilities and goals,then life insurance is not required.

Plan for Children

They can sell one property worth Rs 60 lakh and reinvest those funds in 2-3 good hybrid equity oriented funds. They can dip into these funds as and when the goal requirement comes up. This will also help them balance their portfolio which is currently skewed in favour of real estate. This will take care of the goals related to children.

Express tip: If there are sufficient assets or income sources to cover all liabilities and goals,then life insurance is not required

Retirement

They are fully funded for retirement at 65. Their PF,existing stocks portfolio and one property currently worth Rs 80 lakh will provide them with a corpus higher than what is required for retirement. Few points worth noting here are that PF should not be dipped into if it is being considered as a major part of the retirement portfolio. Also,the corpus estimated is based on certain income growth assumptions,so the income growth has to be monitored for any major shortfall during reviews.

Other aspects and goals

After providing for all goals and other annual expenses and recommended expenses,the Ambekars have a monthly surplus of Rs 56,000. They can start investing this in ultra short-term and short-term debt funds to provide for their holiday expenses. Once a year,they can redeem a chunk which they are not going to use in the coming year to make part pre-payment of their home loan. They should also use the NSC maturity amounts to pre-pay part of the loan. This will help them clear off their loan faster and make available more funds for long-term wealth creation. They should also ensure that they take a personal accident policy commensurate to their income. This will cover any disability that can hamper their income earning capacity. They should also look at renting out their vacant property. The income can be invested in mutual funds for long-term wealth creation.

Conclusion

The Ambekars have created some assets and have inherited some. They need to monitor and protect their assets to ensure that they are able to fully utilise the worth for their goals. They should also look at making a will to ensure that the assets are passed on to the family with ease and as desired.