Express Clinic

Works with the IGI airport

Annual income

Rs 8.4 lakh

Status amp; goals

Somnath 35 works with the IGI Airport,and his wife,Pragati,works in a bank. Both are Central government employees and want to voluntarily retire in another 11-12 years. Somnath has been taking financial decision himself and has diversified his investment across all asset classes. He is considering a second opinion on his asset allocation to ensure his approach is correct and his goals can be met. Somnath has a three-year-old daughter,Samridhi.

Needed

A financial plan which can guide on his child future,retirement and long term goals

Net monthly surplus

Rs 20,000

Current Investments

Equity Rs 2,75,000

Cash Rs 1,00,000

Insurance surrender value Rs 4,50,000

Real Estate Rs 20,00,000

PPF Rs 10,000

GPF Rs 11,00,000

Findings

Emergency fund Somnath has Rs 1 lakh in his savings account

Health Insurance His family is covered through Employer Group Insurance for an unlimited amount

Life Insurance Covered for Rs 6 lakh through ULIP amp; traditional policies

Liabilities A personal loan of Rs 4.75 lakh paying an EMI of Rs 24000

Recommendations

Emergency Fund Since Somnath is covered for most emergencies through his employer,he does not need to enhance his emergency funds.

Express tip An emergency fund serves the need of an account from where you can take the money instantly to meet any shortfall

Samridhis Education He can allocate his existing equity investment and PPF for the goal which will give him a corpus of approx Rs 29 lakh. To meet the balance corpus he will need a monthly investment of Rs 3,000 in equity oriented balanced mutual funds scheme.

Return assumed: Equity 12 p.a. PPF 8 p.a.

Express tip While estimating the cost of your childs education,variable expenses should be given equal importance as they also have a good share and increase with inflation.

Samridhis Marriage

This goal can be achieved by allocating maturities of insurance policies. However,Somnath should review his ULIP amp; traditional policies and see if it matches his requirement. Diversified equity and debt mutual funds should be considered if the products are not achieving the desired objective.

Returns assumed: 12 p.a.

Express tip For selecting any market linked investment product,factors like cost,liquidity,fund management experience,transparency and portfolio disclosures should be considered.

Life Insurance

Somnaths life insurance requirement is Rs 70 lakh. This can be bought through a term plan which will cost him approx. Rs 14,000 annually.

Express tip A life insurance is a vehicle which creates a large financial asset for the family,in case of any contingencies,and helps in meeting the long-term goals like childs higher education which will need a large corpus in the future.

Health Insurance

No requirement of Health Insurance as family is covered through government scheme.

Express tip The stress from work and unhealthy eating habits is leading to increase in health problems and so an adequate health insurance should be the top most priority after life insurance.

Retirement Planning

Somnaths monthly pension post retirement and GPF accumulation will meet his retirement needs. However,all his financial goals will fall after his voluntary retirement and so he should review his financial position periodically to take corrective actions if needed. Existing real estate investments can be utilised in case of any shortfall.

Express tip Longevity is one of the major risks in an individual life cycle and so post-retirement options should be evaluated well to ensure you can manage the shortfall if required.

Conclusion

Asset allocation is an ideal approach when you are investing your surplus. The selection of asset classes should be done after evaluating your risk appetite and time horizon. The cost and transparency in a product is the major consideration. Avoid any combo product which increases the cost,and do not rely only on the numbers presented to you. Do your own research or take the help of right professional before making any decision to ensure the investment meets your requirement.