Express Clinic

Profession: Shift Manager in production Department with an MNc

Net annual income

Rs 6 lakhs

Status amp; goals

Although Milind has delayed planning his life goals he now wants to achieve his two major financial goals of secure retirement and providing good education to his son through proper management of his finances

Needed

A financial plan which can guide on type of investment to be followed to achieve retirement and other financial goals

Net monthly surplus

Rs 17,584

Current Investments

Equity Rs 2.5 lakh

Equity Mutual funds Rs 45,000

PPF Rs 7 lakh

EPF Rs 4.5 lakh

Gold ETF Rs 14,000

Bonds Rs 1.5 lakh

Cash Rs 2 lakh

Insurance surrender value: Nil

Liabilities : Nil

Observations

Milinds existing investments reveal he is now an informed investor. He has not made mistakes of buying bad products and is now following asset allocation approach. Equities,EPF,PPF,and gold form the major part of his investments. To provide protection to his family he has bought a high cover term insurance and is protected through a group health insurance scheme for medical emergencies.

He now wants to plan his investments wisely to meet his life goals.

Findings
Emergency fund

Milind maintains Rs 2 lakh in his savings account at all times

Health insurance

Covered upto Rs 5 lakh through his employer scheme

Life Insurance

Rs 54 lakh cover from 2 different insurance policies

Existing Investments

Equity investment through direct equity and starting a MF SIP is the right strategy to generate inflation beating returns. PPF,although is not fully utilised since 1989 when it was started,is rightly extended for long term goals. He has maintained a good corpus in EPF to reap the benefits in retirement. He has started allocating part of his savings to gold through ETF which is a low cost product. Bonds which form part of his portfolio need a review as they do not fetch high returns and are not tax efficient.

Recommendations
Emergency Fund

Since Milind is maintaining a balance of up to 6 month expenses in this account,no increase in emergency fund is recommended

Express Tip: The objective of creating an Emergency Fund is to maintain the same lifestyle for a reasonable time period in case the income flow stops for any reason,like job loss.

Child Education

Allocate PPF maturing in 2014 and bond investments,which will meet 50 per cent of the target amount. For achieving the remaining corpus,a monthly investment of R 9,653 is recommended in 2-3 good equity Mutual Funds.

Return is assumed 12 per cent p.a.

Express Tip: Switch your equity investments to debt when you are near your goal. This will preserve your accumulated corpus from market volatility.

Health Insurance

Milind should buy a standalone health policy of R 5 lakh for his family. Due to nature of his job,he should also buy an accident insurance of R 50 lakh which will cover the risk of disability.

Express Tip: Although,through portability,you can now shift to the individual plan of insurance company providing the group insurance,the benefits varies across different companies and hence needs to be analysed before the switch.

Life Insurance

As per HLV,his insurance need is R 60 lakh. Since Milind is covered for R 50 lakh through a term insurance,no additional coverage is recommended.

Express Tip: Since,during crisis,life insurance keeps the family8217;s financial plans on track without having to compromise on the standard of living; it should be the first priority in your financial plan.

Retirement Planning

Allocate existing SIPs in MF and gold along with direct equity investment to this goal. Along with accumulated EPF corpus at retirement,they will meet 60 per cent of the required corpus. For the remaining corpus,monthly investment of R 10,000 is recommended in 2-3 good equity MFs.

Return assumed: 12 per cent p.a.

Express Tip: Plan finances required for longer than expected life. Make sure all your liabilities are fulfilled before you reach your retirement.

Purchase Own House

Since you have only 13 years to retirement and other financial goals are on priority,buying a house on EMI will be difficult with your existing resources.

Express Tip: Home loan EMIs are huge liability and difficult to service in case of rising interest rate scenario. Add it only when you are sure to repay your loan well before your retirement.

Conclusion

Procrastination affects our financial lives. When accumulation is the only option,it8217;s important that you plan your goals early in life. It helps in preventing costly mistakes and you reap the benefits of compounding your money with minimum savings.