Express Clinic

Profession: Senior Administration Executive in a manufacturing company

annual income

(R3.12 lakh)

Status & goals

Chitra is the quintessential urban,middle-class girl. Happy go lucky,with a zest for life. She is happy being single currently,enjoying her freedom and her job. She is the only child and does not have any dependents. At the insistence of her parents she wants guidance on her finances which she has never given a serious thought. She has not thought in terms of financial goals. Helping her articulate some goals for her money was a key ingredient of this plan. Her goals are accumulating a small corpus to help her parents fund her marriage and another corpus for a career break in about 3-4 years time. And if possible,planning for retirement.

Needed

Their basic goals are funding her marriage and accumulating a corpus for a career break in 3-4 years.

monthly Income

R26,000

monthly expenses*

Rs12,000

Net monthly surplus Rs14,000

Current Investments

EPF: Rs 1.20 lakh

PPF: Rs 2.50 lakh

Savings accounts: Rs 1.75 lakh

FINDINGS

Emergency Fund: There is Rs 1.75 lakh lying in the savings account. This is nearly 14 months worth of expenses. There is excess liquidity.

Health insurance: No personal health cover. Employer provided health cover seems sufficient for now.

Insurance: There is an endowment policy of Rs 5 lakh for which an annual premium of Rs 24,000 is being paid.

Investments: PPF account is the only instrument being used for personal investment. Current balance stands at Rs 2.50 lakh.

Retirement: Indirect investments building up through the EPF route is the only fund which has been thought of as a retirement corpus. The current balance stands at Rs 1.20 lakh

Liabilities: There are no liabilities except a small credit card outstanding which will be paid off before the due date.

Recommendations

Emergency Fund: There is excess liquidity available. In her case she needs to maintain only about 3 months worth of expenses in liquid from for emergency. That amounts to about Rs 36,000. This can be kept in the savings account itself.

Express tip: Keep your money working. Excess money in liquid form can hinder achievement of other goals.

Health Insurance: Her health insurance cover seems to be sufficient for now. She can look at including her parents in the group cover provided by her employer if that is permitted.

Express Tip: Group health insurance provided by employers is a major benefit. It is good to cover the entire family if permitted.

Life Insurance: Chitra has no liabilities or dependents. Hence she does not need life insurance. Her current insurance policy provides a low risk cover and low returns. But it does not impact her cash flow in a big way. Hence she can continue the policy. She should purchase a term plan when she takes on some liability (like taking a home loan) or has dependents.

Express Tip: Life insurance is absolutely need based. One should look at current and probable future scenario while deciding on this.

Corpus for wedding and career break: Chitra can transfer Rs 1.40 lakh from her savings account into a medium term debt fund towards her wedding corpus. She will need to start a recurring deposit of Rs 13,000 per month to fill in the gap. For her career break corpus,she needs to start an RD of Rs 7,000 per month for three years.

As she does not have sufficient monthly surplus to meet both these goals,she will either have to curtail spending or reduce the goal amounts.

Retirement: If Chitra wishes to generate income equivalent of Rs 12,000 per month today,for 20 years after she retires,she will need a corpus of Rs 3.09 crore. Chitra’s EPF corpus should build up to Rs 1.05 crore based on the current figures provided. She can generate the balance by investing a small sum of Rs 2,000 per month in a good equity mutual fund till she retires.

She currently does not have surplus to meet her short term goals and retirement.

Other aspects: Chitra’s parents do not want her to spend for the wedding. So she has to decide how she should realign her goals. She also gets some bonus every year which can be put aside as a starting corpus for the retirement corpus. Besides,her income might go up significantly over the next few years due to career progression.