Express Clinic

Profession: Banker

Net annual income

Rs 20 lakh

Other details: Wife Supriya,31,homemaker,son Raghav 3,and daughter Rohini,3 months

Status amp; goals

He wants to buy a holiday home this year. His main goals are: education and marriage of both children,plan for a comfortable retired life

Needed

A financial plan that can fulfill his goals and provide a steady income after retirement.

Net monthly surplus

Rs 13,000

Observations

He is heavily invested into real estate and has multiple liabilities. He shells out Rs 70,000 a month on EMIs and has committed savings of Rs 48,000 per month.

Findings

Emergency fund:

Balance in savings bank is Rs1 lakh. He has set aside Rs 16 lakh in FDs and RDs of different tenures.

Health Insurance:

Rs 3 lakh cover provided by employer for self,spouse and two children. There is no personal health insurance cover. Employer provided cover is grossly inadequate.

Life Insurance:

16 traditional life insurance policies,one ULIP and a term plan of Rs 5 lakh. Total risk cover available from all the policies Rs 14 lakh. The total premium outgo is Rs 83,000 per year. In addition there is an employer-provided group term insurance of Rs 25 lakh.

Investments:

There are two flats of total value Rs 1.6 crore. One is used by Amoghs family and another by his parents.

Retirement:

There is no focus towards retirement planning.

Liabilities:

Total loans outstanding are Rs 42 lakh. EMIs paid are: Rs 35,000 for home loan,Rs 9,000 for vehicle loan,Rs 26,000 for personal loan.

Recommendations

Emergency Fund: Maintain Rs 1 lakh in flexi-savings account. Keep about Rs 2 lakh in ultra short term mutual funds.

Express Tip: Always keep 3-6 months of expenses in ready to use form. Do not forget to include EMIs in the expenses. Too much money in emergency fund can affect portfolio returns.

Health Insurance: Immediately buy personal health insurance cover of at least Rs 5 lakh each for self and spouse and Rs 3lakh for each child. This should cost around Rs 25,000 per anum.

Express Tip: Funds required for hospitalisation can lead you to debt crisis if money is short. Keep personal health cover apart from that provided by the employer to tide over conditions like change or loss of job.

Life Insurance:

Surrender or make paid -up based on the surrender values,all policies except the term plan and the ULIP. Buy a term plan worth Rs 2.4 crore. This should cost about Rs 60,000 per anum.

Express Tip: Death of sole income earner can jeopardize the whole family. Always insure before you invest.

Accident Insurance:

Amogh should buy an accident insurance policy of Rs 1 crore. This should also cover temporary total disability and permanent partial disability.

Other investments:

Liquidate existing FDs and RDs to repay the outstanding personal loan of Rs 12 lakh. This will free up Rs 26,000 per month. Keep balance Rs 4 lakh in liquid fund/FMP combination as emergency fund. Continue the ULIP. At a 12 per cent expected return,this should yield about Rs 23 lakh in 2020.

The total amount available after dealing with the life insurance policies and currently running RDs,closing personal loan and including the surplus from income will be Rs 77,000 per month.

Increase investment in PPF to use the entire available limit of Rs 70,000 per annum. Start RD of Rs13,000 per month for 12 months to pay for PPF,Term Plan and Health insurance.

Raghavs Goals: Start SIP of Rs 20,000 per month for education and Rs 2,500 for wedding goal.

Rohinis Goals: Start SIP of Rs 35,000 per month for education and Rs 2,000 for wedding goal.

Retirement: Start SIP of Rs 8,000 to support retirement. There is only Rs 4,500 available in the current situation. Increase this as salary increases. Other components will be corpus from PF,PPF,ULIP investments and sale of existing second property.

The goal of buying a holiday home cannot be fulfilled currently. A decision should be taken in future after salary increase after all the other goal requirements have been met.

Express Tip: Mistakes,if done have to be corrected. Do not hesitate to book losses if it improves your future prospects.

Conclusion

Financial Planning provides you the path to maintain right balance between present amp; future lifestyle.

A thorough budgeting exercise,proper management of expenses and right asset allocation can help you meet financial goals.