Name: Rohit (32) and Riya (31)
Status & goals
Rohit is a lawyer working with a legal firm in Delhi. He got married to Riya in January this year. Now,the couple wants to give strategic dimension to their personal finance. Riya is a lecturer working with a private academic institution. The couple stay in a rented apartment and dream of having their own home on priority basis. They are also concerned about securing their retirement. Though they dont have immediate plans to start a family,they still want to ensure
adequate financial resources for their children by planning early.
A comprehensive financial plan for all goals retirement,house purchase,insurance planning and childs future.
Net monthly surplus
Fixed Deposits: Rs 2,50,000
Recurring Deposits: Rs 80,000
PPF: Rs 1,25,000
Equity Mutual Funds: Rs 1,70,000
Insurance Policies (Surrender Value):
Gold: Rs 4,00,000
Emergency fund: Adequate emergency fund in the form of fixed deposits.
Life insurance: Total life coverage of Rs 5 lakh with annual premium of Rs 40,000
Health Insurance: NIL
Investments: Exposure to debt and mutual funds but no direct equity or real estate
Emergency fund: Amount in fixed deposits is sufficient to meet up to three months of expenses.
Express TIP: It is prudent to maintain three to six months of expenses as emergency fund to face temporary uncertainties in life.
Life Insurance: Rohit needs additional life cover of Rs 1 crore. A term plan for 30 years will cost him approximately Rs 18,000 per year.
Express TIP: Right Insurance coverage must be taken by the main earning member of the family ensuring adequate replacement income to dependents in case of any unforeseen eventuality.
Health Insurance: Rohit should take a personal family floater of at least Rs 10 lakh which will cost him approximately Rs 12,000 annually.
Express tip: Employees,especially those working in private sector,should have a personal comprehensive family health cover despite having employer-provided health insurance benefit.
Accident Insurance: A personal accident policy of Rs 50 lakh is recommended for Rohit costing approximately Rs 5,000 annually.
Express tip: Its important to have adequate disability insurance as permanent/partial disability can jeopardise your regular future income.
Planning for Goals
House Purchase (2015): The couple need to arrange for 15 per cent down-payment amount of Rs 9.07 lakh. Existing fixed deposits,recurring deposit and mutual fund investment will bring in Rs 4.19 lakh. To fund the balance down payment amount,the couple needs to save Rs 11,900 per month in a Recurring Deposit. The couple can go for home loan for funding the balance which will result in an EMI of approximately Rs 50,000 per month. Existing investible surplus along with annual appraisal and saving in rent will be sufficient to cater to home loan EMI.
Rate of return assumed 9% in recurring deposit.
Express TIP: Working couples should go for joint home loan which not only helps in sharing debt-burden but also allows getting a higher loan. Also,all co-borrowers can claim tax deductions under Section 24 and 80C.
Retirement Planning (2040):
PPF and existing insurance policies will fund Rs 1.11 crore at retirement leaving a shortfall of Rs 3.89 crore. For this,the couple should invest in real estate with an EMI of Rs 8,000 and Rs 8,100 in diversified multi-cap equity funds.
Rate of return assumed: 10% in property and 12% in equity funds
Express TIP: Property and Equity investments always provide inflation beating returns over long term. The indexation factor in property also ensures lower tax when held for longer periods.
Starting investing early in life will help the couple in accumulating productive assets which can meet most of their financial goals comfortably. A long-term outlook will help in investing in the right asset classes offering the benefit of both diversification and appreciation.