Express Clinic

Profession: Government Service

Annual income

Rs4.32 lakh

Status amp; goals

Status amp; goals

Sandip lives with his parents,wife Anishka and his three-month-old son Arnav. Anishka 30 is a homemaker. Sandip wishes to create focus areas for managing his personal finance. His main concern is over a loan that he has taken recently from a coopertive society for buying a plot of land. He wants to build a house on that plot a few years from now. He wishes to be prepared for his sons education and have sufficient funds for his education in engineering.

Net Income Rs36,000

Basic expenses RS10,000

Emi on loan RS10,000

Needed

A comprehensive financial plan for retirement,insurance planning and childs future.

Net monthly surplus Rs16,000

Goalsin order of priority

Arnavs Education 2031

inflation 10

Current Value Rs7 lakh

Future value2041

Rs34 lakh

Retirement Planning 2041 Pre-retirement inflation 8 Life Expectancy

85 years,Post Retirement Inflation 7,Growth of Corpus at the rate of 8

Current expenses pa Rs1.20 lakh

future value Rs10.35 lakh

corpus required Rs 2.32 crore

Life Insurance coverage

Sandip: Rs 8 lakh

Anishka: Rs 2 lakh

Total premium paid: Rs 35,000 per annum

Health insurance: Covered by employer on actuals for self,spouse,child and both parents.

Findings

Emergency Fund There is no liquidity available for emergency situations.

Health insurance

The entire family,including senior members are covered by the employer. This is a huge positive.

Insurance All insurance policies are risk-cum-investment policies. A cover of Rs 8 lakh for a premium of Rs 35,000 per year is expensive. There is a huge gap in risk coverage as Sandip is the sole earning member of the family.

Investments Sandip has made an attempt to start investing with diversification. He has started a PPF account and one SIP in a mutual fund. This SIP is into a sectorial fund,which is not a good option for a beginner.

Retirement Though he is in government service,his organisation has not yet been notified for the retirement benefits available to government employees. Hence he does not have any contributory pension scheme of PF options. He is yet to start saving for his retirement.

Liabilities: He has taken a loan of Rs 5 lakh from a credit society at 11.25 per cent interest for a tenure of seven years. He is paying about Rs 10,000 per month towards this loan.

Recommendations

Emergency Fund Sandip should discontinue his mutual fund SIP that is currently ongoing. He can utilise that fund and an additional Rs 2,000 per month to start a recurring deposit of Rs 3,000 per month for two years. This should give him a corpus of about Rs 65,000 which he can keep at all times as an emergency fund.

Express tip: Emergency fund is the first step to cover your risks.

Health Insurance His employer provided health facilities are sufficient for the family. He need not go for an additional cover.

Express Tip: Be sure to read the fine print of benefits provided by your employer. This will save you from nasty surprises in difficult times.

Life Insurance: Sandip needs to have an insurance cover of at least Rs 50 lakh. He should look at making one of his existing policies paid-up. This will save him future premium. He can utilise this to buy a term plan for Rs 50 lakh for 30 years. This should cost him about Rs 12,000 per annum. He should avoid buying further policies which have an investment component.

Express Tip: Aim of buying insurance should always be to provide the family with sufficient corpus to generate an alternate source of income in case of death of the primary earner.

Debt Management Sandip can double his monthly outgo towards his loan. This will help him close the loan in about three years. This will free up funds to be invested for other goals.

For building a house on the plot of land,he should look at his cashflow situation after 5-6years. Based on figures given by him for his salary increase etc,he should be in a position to avail of a loan of about Rs 15 lakh in 5 years. This will help him meet his goal.

Child Goals At present,Sandip should focus on loan repayment. Once the loan is closed,he can start a SIP of Rs 4,000 per month in a diversified equity mutual fund. This will help him achieve the goals for Arnavs education.

Retirement Investment for retirement can start after the loan is closed. He should start a SIP of Rs 6,000 per month in a diversified equity mutual fund to meet this goal.

Other Aspects: In case of better cashflows due to salary increase,Sandip should look at starting a SIP in a debt mutual fund. This will help him create a small corpus for funding his goal of building his house.

Conclusion

Sandip has taken a good step by deciding to take advice for streamlining his finances. This will help him get a head start in meeting his goals and avoiding mistakes.

Plan By Kiran Telang,

Certified Financial Planner,

Member of the Financial Planners Guild,India

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