Express Clinic

Profession: Operations Manager in a bank

Annual income

Rs 7.44 lakh

Status amp; goals

Sushant Singh is an Operations Manager with a private bank in Noida. He stays in a rented accommodation in Ghaziabad along with his wife Rekha,who is an Accounts Executive with a telecom company. Sushant began working four years ago,and he has been a consistent saver,predominantly investing in debt portfolio. Recently,he started taking exposure in equities through the Mutual Fund SIP route. The couple now wants to buy a house and secure their retirement.

Needed

A comprehensive financial plan securing couples retirement and a goal to purchase a dream home

Net monthly surplus

Rs 30,000

Current Investments

Fixed Deposits: Rs 1,50,000

PPF: Rs 90,000

EPF: Rs 1,10,000

Equity Mutual Funds: Rs 1,20,000

Gold: Rs 3,00,000

Insurance Surrender Value: Rs 80,000

Findings

Emergency fund: Sushant has adequate emergency fund in the form of fixed deposits.

Life insurance: Total life coverage of Rs 10 lakh with annual premium of Rs 40,000 towards three traditional policies.

Health Insurance: Company provided family floater of Rs 3 lakh.

Investments: Exposure to debt and equity through own research and friends advice.

Liabilities: NIL

Recommendations

Emergency fund: Amount in fixed deposits is sufficient to meet up to three months of monthly expenses.

Express tip Salaried people should maintain at least three months of emergency expenses as a buffer to face temporary uncertainties in life.

Life Insurance: Considering need based approach,Sushant needs life cover of Rs 1.28 crore. He should take a term plan for 30 years which will cost him approximately Rs 15,000 per year.

Express tip Adequate life insurance coverage is must for the main earning member of the family to ensure income replacement to dependents.

Health Insurance: Sushant should take a personal family floater of at least Rs 10 lakh which will cost him approximately Rs 12,000 annually.

Express tip Private sector employees should take a comprehensive personal family health insurance despite having employer-provided health insurance cover.

Accident Insurance: A personal accident policy of Rs 50 lakh is recommended for Sushant costing approximately Rs 6,000 annually.

Express tip Disability insurance is a must for the main earning member to ensure regular income in case of permanent or partial disability due to accident.

Planning for Goals

Buying a House 2015

The couple needs to arrange for 15 per cent down-payment amount of Rs 7.26 lakh. Existing Fixed Deposit surplus and Mutual Fund investment will fetch Rs 2.15 lakh. To fill the gap,the couple need to start a Recurring Deposit of Rs 19,500 per month.

Rate of return assumed: 9 in recurring deposit.

Express tip Equity exposure should be avoided for short-term goals. It is prudent to accumulate and park money in debt assets.

Retirement Planning 2043:

EPF,PPF and existing insurance policies will provide Rs 1.64 crore at retirement leaving a shortfall of Rs 3.35 crore. For this,the couple should invest Rs 10,100 per month in diversified equity funds.

Rate of return assumed: 12 in equity funds amp; 8 in EPF / PPF

Express tip Diversified Equity Mutual Funds provide high returns over long-term and the increasing tenor reduces the risk correspondingly.

Conclusion

Having well-defined goals,sincere financial approach and consistency is all one needs to achieve financial freedom. Sushant has age on his side making time an ally in achieving his two major financial goals even with limited resources. With increased income in future,the couple would also be able to plan and secure kids education and marriage.