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Status & goals Sonal recently lost her husband (Rohan) in a road accident. She has a daughter (Sanya) studying in 7th standard. At present,her regular source of income is the interest form of fixed deposit,which has started after investing Rs 50 lakh of Rohan’s life insurance proceeds. Though her daily routine expenses are being taken care of by interest income,she’s worried for her daughter’s higher education and marriage. Sonal is a post graduate in bio technology and is looking for a job as a teacher which can pay her about Rs 40,000 a month. She lives along with her in-laws in their own house.

Name: Sonal Dua (42)

Resides in Indore

unemployed *(income from Fixed Deposit interest)

annual income

*(R4.50 lakh)

Status & goals

Sonal recently lost her husband (Rohan) in a road accident. She has a daughter (Sanya) studying in 7th standard. At present,her regular source of income is the interest form of fixed deposit,which has started after investing Rs 50 lakh of Rohan’s life insurance proceeds. Though her daily routine expenses are being taken care of by interest income,she’s worried for her daughter’s higher education and marriage. Sonal is a post graduate in bio technology and is looking for a job as a teacher which can pay her about Rs 40,000 a month. She lives along with her in-laws in their own house.

Needed

Sonal is looking for a plan to help organise her finances so that hers and her daughter’s future can be secured.

Monthly Income

Rs 37,500

Monthly expenses

Rs15,000

Net monthly surplus R22,500

Goals in order of priority

Sanya’s education (2018)

(inflation 10%)

Current Value R5 lakh

future valueR8.5 lakh

Sanya’s Marriage (2025)

(inflation 7%)

Sanya’s Marriage (2025)

(inflation 7%)

R5 lakh

future value R11.25 lakh

Regular income cum Retirement Planning (2013/2026)

(inflation 7%) (Life expectancy – 80 years)

Current expenses (pa)

Rs1.80 lakh

Future value Rs4.35 lakh

corpus required Rs87 lakh

Current Investments

Bank fixed deposits – Rs 50 lakh

PPF – Rs 3 lakh (to mature in 2015)

FINDINGS

Emergency fund: Sonal is not aware of the emergency fund concept. Whatever she has is in bank fixed deposit.

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Life insurance: She doesn’t have any life insurance cover.

Health Insurance: She doesn’t have any health insurance cover.

Investments: Her investments are into a very safe investment class with the purpose of getting regular income.

Liabilities: Sonal doesn’t have any liabilities.

Recommendations

Emergency fund: She should be having an identifiable emergency fund in place which she can fall back upon at the time of any emergency. This amount should be immediately liquidable. She should break lump sum fixed deposit and keep Rs 1 lakh as emergency fund.

Express TIP: Keeping emergency fund in fixed deposit is not a good idea; one may use liquid mutual funds if one has concerns on rate of interest earned.

Life Insurance: Though she has responsibility of Sanya on her,but looking at the finances in place,she does not need any kind of life insurance policy. She should also stay away from investment linked insurance plans.

Express TIP: Life insurance is only for those who have financial dependents. When there are no dependents,there is now need to buy life insurance cover.

Health Insurance: Sonal should immediately buy a family floater comprehensive health insurance policy with a sum assured of at least Rs 5 lakh,covering herself and sanya into it. The annual premium outgo for this would be Rs 13,000.

Express tip: Health insurance is one of the must-have insurances in a personal finance profile. It prevents erosion of your investments indirectly.

Accident Insurance: Personal accident policy covers the disability and accidental death aspects. Just like life insurance,keeping in mind the present financials of Sonal,she doesn’t need any accidental insurance policy.

Express tip: Where finances are not in proper place,accident insurance becomes must to protect the regular income stream in case of any eventuality.

Sanya’s education (2018): She should allocate Rs 5 lakh from her bank fixed deposit for this goal,and park in a debt oriented hybrid mutual fund. Mutual funds will take care of tax efficiency part.

Rate of return assumed 10% post tax

Express TIP: Depending on the tax status of the individual,one should use the variety of mutual funds in different combinations. These are good from tax efficiency point of view.

Sanya’s marriage (2025): Allocate Rs 3 lakh from the bank fixed deposit for this goal and park this amount in hybrid equity oriented mutual funds.

Rate of return assumed is 12% post tax.

Express TIP: Long-term goals should be supported with more allocation on equity. But do look at the personal risk profile too,so the volatility should not bother you much.

Regular income cum Retirement Planning (2013/2026): As far as regular income is concerned,keeping in view her monthly expenses of Rs 1.80 lakh,she needs to stay invested in bank fixed deposit of Rs 22.50 lakh with monthly interest payout option. If she is able to get a job in next few months then the income will get supplemented with salary,otherwise she may increase the amount of fixed deposit to Rs 30 lakh. Now to secure her retirement years,she should invest Rs 11 lakh of balance fixed deposit amount in equity oriented balance mutual funds. Rest investments should be funded with the salary portion which she will start earning whenever she gets a job.

Rate of return assumed 12%

Express TIP: When there is a question of regular income,one should always be invested in a safe investment class. Real estate and equity,both are termed as risky investments.

Conclusion

Staying invested in only one asset or investment may not serve you well. You need to understand your goals and allocate your money for different priorities in appropriate assets. Also keep in mind inflation and tax rates.

Plan By Manikaran Singal,

Certified Financial Planner,

Member of the Financial Planners’ Guild,India

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