Express Clinic

Profession: Teacher

Net annual income

Rs 5.40 lakh

Status amp; goals

Shyamala resides with her two children Radha 11,Vasudevan 6,in their self owned flat in Thane. Two years back she lost her husband in a fatal road accident. Being the sole earning member Shyamala juggles between her job as a teacher in a private school and then gives private tuitions at home in the evening to supplement her income. She dreams of providing the best education to her children but is concerned whether she will be able to save enough for her children8217;s educational requirements and her retirement

Needed

A plan to secure children8217;s educational funding and providing them protection in case any calamity befalls on Shyamala

Net monthly surplus

Rs 15,000

Current Investments:

Savings Account : Rs 50,000

EPF : Rs 4.5 lakh

Bank Fixed Deposit : Rs 10 lakh

Findings

Emergency fund: Shyamala has sufficient amount maintained in savings account and fixed deposits.

Life insurance: She has an endowment policy of R 5 lakh sum assured which covers her till the age of 49.

Health Insurance: Family floater policy of R 5 lakh sum assured.

Investments: Apart from her PF,she has maintained a good amount in FD8217;s which was received from her husband8217;s insurance claim.

Liabilities: No liabilities

Recommendations

Emergency Fund:

Apart from maintaining the savings balance,Shyamala should separate an amount of R 1 lakh from her FD8217;s for her contingency requirements.

Express tip: To tackle unexpected financial emergencies,3-6 months of expenses should ideally be maintained in liquid form.

Life Insurance:

Considering need based approach,Shyamala needs an additional insurance cover of R 45 lakh. A suitable term plan for 20 years tenure will cost R 8,500 p.a and needs to be brought under MWPA Act. She should also continue with her existing policy as only few years remain for maturity.

Express tip: Insurance provides cushion against loss of income due to early death and helps maintain the family8217;s lifestyle as before.

Health Insurance:

Cover needs to be enhanced to R 10 lakh for the family which will cost an additional R 5,000 p.a over the existing premium.

Express tip: For single parents it is imperative to have a high medical cover to prevent erosion of savings and avoid getting into debt.

Accident Insurance:

A personal accident policy of R 25 lakh with R 5 lakh as TTD benefit is recommended and it should cost R 3,000 p.a

Express tip: Personal accident policies cover various forms of disability and also provide monthly income benefits which can provide a lifeline for a single parent if the adverse event occurs.

Planning for Goals

Children8217;s Education: 2019 to 2024

From the present FD8217;s,Shyamala needs to allocate R 4 lakh into two balanced mutual funds and start an sip of R 5,500 p.m in the same funds.

Rate of return assumed 10 in balanced mutual funds.

Express tip: Balanced funds provide the stability of debt and high returns of equity with lower risk in the long run.

Daughter8217;s Marriage: 2027

Start saving R 5,000 in the ratio of 50:50 in a large cap equity fund and gold fund

Rate of return assumed 12 in equity funds and 9 in gold funds.

Express tip: Equity and gold combination provides a good diversification and enables inflation beating returns for long term goals.

Retirement Planning: 2031

Shyamala8217;s Employee8217;s Provident Fund corpus at retirement will be close to R 51 lakh assuming annual increase of 5 per cent basic salary.

Balance FD of R 4 lakh should provide R 15.2 lakh on reinvesting it till retirement. To bridge the shortfall,R 14,000 per month needs to be invested in the ratio of 60:40 in diversified equity funds and long term debt funds. At present only R 4,000 can be invested. A 20 per cent increase in SIP allocation every year will help achieve this goal. Rate of return assumed 12 per cent in equity funds and 8 per cent in debt funds.

Express tip: Always allocate your entire provident fund money for your retirement.

Conclusion

In the absence of spouse,a single parent has to shoulder huge responsibilities as there is no one else to fall back on if things go wrong. Apart from inculcating financial discipline in children,estate planning and identifying the appropriate guardian is also crucial for single parent families