Express Clinic

Profession: Mohan is an IT professional and Rajni works in the pharma sector

Net annual income

(Rs 19.44 lakhs)

Status & goals

Mohan,43 and Rajni,36 are living in different cities due to job compulsions. After having worked for about 12 years,they feel they have not created any wealth for themselves. Being in different cities leaves them with no time to sit down and plan their finances. Besides,maintaining two houses is taking a toll on their saving capacity

Needed

A financial plan that will force him to save and also provide good returns for future goals and retirement.

Net monthly surplus

Rs 45,600

Findings
Emergency fund

Savings bank Rs 1 lakh. FDs worth Rs 70,000.

Health insurance

Employer provided cover which provides coverage including that for dependent parents.

Insurance

Mohan has a term plan of Rs 50 lakh.

Rajni is covered for a small amount of Rs 3.5 lakh.

Investments

Gold worth Rs 4 lakh in the form of jewellery. Rajni has a PPF account with a balance of Rs 2.5 lakh. They have NSC which will be maturing in the next three months with a maturity value of about Rs 2 lakh. They own a plot of land worth Rs 26 lakh. Mohan has some mutual fund investments which are worth R 1.1 lakh currently.

Retirement

Their only plan for retirement is their land. Mohan has an EPF balance of R 3 lakh and Rajni’s balance is R 72,000.

Liabilities

There is a home loan for which they pay an EMI of R 16,000. The loan tenure will get over in 2020. The property purchased with this loan is their primary residence.

Recommendations
Emergency Fund

The family should have R 2.13 lakh as contingency funds. Use funds from the NSC that can be kept in the form of an FD linked to the savings account.

Express Tip: Always keep 3-6 months of expenses in ready to use form. Do not forget to include EMIs in the expenses.

Health Insurance

Mohan and Rajni should each have a personal health insurance cover of R 5 lakh R 3 lakhs for each child. This should cost about R 15,000 p.a.

Express Tip: Personal health insurance will protect you in scenarios like job loss.

Life Insurance

Mohan should take an additional life insurance cover of R 80 lakh and Rajni R 40 lakh. A term plan will suit their requirement best. The total cost for risk cover for both of them should be in the range of R 40,000 per annum.

Express Tip: Sometimes seemingly big term plan is also not enough when actual need is estimated.

Accident Insurance

Both Mohan and Rajni should get a personal accident insurance cover of R 10 lakh. This will be useful in case of disablement due to accident. Payments will be received in monthly instalments for about 2 years in case of temporary total disablement in case of accident. This should cost approximately R 2,000 annually.

Express Tip: Accident can affect incomes temporarily or permanently.

Children’s goals

Aryan’s education will require an outlay of Rs 16,000 in an SIP. For his marriage,they need to start an SIP of Rs 3,000 per month. To meet Radhika’s education expenses,start an SIP of Rs 12,500 in a diversified equity fund. Similarly for her marriage,start an SIP for Rs 4,000 in a combination of good diversified equity mutual funds and balanced funds

Express Tip: Start investing early.

Retirement

The sources for retirement funds will be PPF,EPF,property and MFs. Rajni’s PPF balance can grow to R 19.88 lakh in 17 years,assuming average 8 per cent return and annual investment of R 1 lakh. Combined EPF corpus should be R 2.41 cr (increase of salary at 7 per cent and average EPF rate 8.5 per cent). Property should fetch them about Rs 1 cr in 17 years. Existing mutual fund SIP of Rs 18,000 and balance of R 1.1 lakh should add Rs 1.26 cr at 12 per cent. An SIP of R 6,400 can meet the goal. The shortfall of R 4,000 pm can be met by investing their bonuses and salary increases into MFs.

Express Tip: All sources should be considered to arrive at the retirement corpus.

Other investments

Maturity of NSC should be utilised for emergency funds,term insurance policy,health and accident insurance covers. The balance left after this should be invested in a good debt oriented hybrid fund to serve as additional corpus for lifestyle goals.