Express Clinic

Human Resource Professional

Status & goals

Vikram (33) works with a HR consulting company in Noida. His wife is a

homemaker and they have a two-year-old son. Vikram is an aware investor who understand benefits of long-term investments and the importance of protecting family through insurance cover. He has been investing across different asset classes and has prudently invested in good products. He has not added any liability till date. To ensure he is on the right path,he wants to draw a road map which can

help in meeting his life goals.

Needed

A financial plan which can guide him in achieving his goals.

monthly Income (post tax)

Rs50,000

Monthly expense

Rs40,000

Net monthly surplus

Rs10,000

Current Investments

Cash: Rs 50,000

FDs: Rs 2,00,000

EPF: Rs 3,00,000

Equity MF: Rs 2,50,000

PPF: Rs 2,75,000

Insurance SV: Nil

FINDINGS

Emergency Fund: Vikram has Rs 50,000 in his savings account & Rs 2 lakh in FDs

Health insurance: He has a health cover of Rs 2 lakh from his employer

Insurance: Covered for Rs 50 lakh through a term insurance policy

Liabilities: Nil

Recommendations

Emergency Fund: Vikram should maintain an emergency fund of Rs 2 lakh. Allocate funds lying in savings account and balance from fixed deposits by investing them in money market mutual funds.

Express tip: Emergency funds objective is to provide for cash when in need and so should be kept in the most liquid instruments

buying a house: It’s difficult to meet this goal with the assets currently available. Vikram will have to consider a housing loan but should keep EMIs within 25-30 per cent of his net income. For accumulating down payment amount he can consider investing Rs 5,000 p.m. in debt mutual funds. Alternatively,he should try to reduce his monthly expenses.

Returns Assumed: 8% p.a.

Express Tip: Buying a house can cost a lot of money. Avoid taking huge loans which can strain your finances in adverse scenarios.

son’s education: Allocate existing equity mutual funds investment towards this goal. This will help accumulate a corpus of approximately Rs 10 lakh. For balance amount he should consider a monthly investment of Rs 5,000 in diversified large-cap oriented equity mutual funds schemes.

Return Assumed: 12% p.a.

Express Tip: Education loan is a good source for funding the high cost of education provided you keep the repayment history clean.

son’s marriage: Allocate PPF investment towards this goal which will fetch approximately Rs 20 lakh. For remaining corpus he will need a monthly investment of Rs 3,000 in multi cap equity mutual funds schemes.

Return assumed 12% p.a.

Express Tip: Considering the tax-free status of PPF,it’s a good tool for accumulating corpus for long term goals

life insurance: Vikram’s insurance need is Rs 1 crore. He can buy additional coverage of Rs 50 lakh through a term insurance policy which will cost him additional Rs 7,000 p.a.

Express Tip: A term insurance is the most cost effective means to provide financial security to your dependents in case of any contingencies.

health insurance: He should consider a standalone health insurance of Rs 3 lakh for the family which will cost him a premium of approximately Rs 8,000 p.a.

Express Tip: Although group insurance is portable now,the decision of continuation of benefits rest with the company which may not be beneficial.

retirement planning: EPF will partially meet his retirement goal if continued. For reaching remaining corpus he can allocate his monthly SIP of Rs 7,000 towards this goal.

Return assumed: 12% p.a.

Express Tip: Early planning for retirement ensures you optimise your resources and can evaluate options if there remains a shortfall in meeting your expenses.

Conclusion

A financial plan only gives you the blueprint of your financial future. The success of it lies in implementing and following the discipline which is required for achieving the desired goals. Self -awareness is one of the important aspects of financial planning which helps you avoid common investing mistakes and can take financial decisions needed for achieving your objectives.