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Name: Smita Bhandari
Resides in: Navi Mumbai
Profession: Works in a pharma company
Net annual income
(Rs 4.80 lakh)
Status & goals
Smita (37) resides with her husband,Nitin (42) and her daughter Shreya (8) in their self occupied flat in Khargar,Navi Mumbai. Nearly a year back Nitin met with a terrible accident which resulted in spinal injuries,rendering him bed ridden ever since. Smita works as a secretary in an MNC pharma company and manages the family expenses and daughter’s education all alone. Nitin is expected to recover in a years time. Smita is worried for her daugthers higher education funding and the couples retirement
A plan to secure daughters educational funding,retirement planning and risk protection
Net monthly surplus
Savings account : R 75,000
Employees provident fund : R 6 lakh
Bank fixed deposit : R 3 lakh
ELSS mutual funds : R 2 lakh
Emergency fund: Smita has sufficient amount maintained in savings account and fixed deposits.
Life insurance: She has an endowment and term policy of R 28 lakh sum assured which covers her till the age of 56.
Health Insurance: Family floater policy of R 5 lakh sum assured.
Investments: Majority of the investments are in EPF and fixed deposits with small allocation to equity through tax saving mutual funds.
Liabilities: No liabilities
Apart from maintaining the savings,Smita should separate an amount of R 1.5 lakh from her FDs for her contingency requirements.
Express Tip: To take care of recurring medical expenses,especially of uninsurable dependents,8 to 12 times of monthly expenses should be maintained in liquid form.
Life Insurance: Considering need based approach and uncertainty in spouses income,Smita needs an additional insurance cover of R 25 lakh. A suitable term plan for 25 years tenure will cost R 10,000 p.a. She should also continue with her existing policies.
Express Tip: Adequate life insurance should be the first priority before starting any investments as it ensures continuity of present lifestyle of the dependents in case of early death of the bread earner.
Health Insurance: Cover needs to be enhanced to R 5 lakh for self and spouse (if permitted) and R 3 lakh for daughter. This will cost an additional R 8,000 pa over the existing premium.
Express Tip: When you are pushing 40s its imperative to have a higher medical cover to offset rising medical costs.
Accident Insurance: A personal accident policy of R 25 lakh with R 4 lakh as TTD benefit is recommended and it should cost R 3,000 p.a
Express Tip: Disability can lead to loss of income which can be covered to some extent by a comprehensive personal accident plan.
Daughters education (20192024): Start an SIP of R 8,000 per month in two balanced mutual funds for this goal.
Rate of return assumed 10% in balanced mutual funds.
Express Tip: Balanced funds provide inflation beating returns with low to moderate risk over longer periods.
Daughters marriage (2029): Start saving R 4,500 in the ratio of 60:40 in a large cap equity fund and a gold fund.
Rate of return assumed 12% in equity funds and 9% in gold funds.
Express Tip: Equity and gold is an ideal combination for childrens marriage goals as it enables inflation beating returns and good diversification.
Retirement Planning (2030): Smitas employees provident fund corpus at retirement will be close to R 52.7 lakh assuming annual increase of 5 per cent basic salary. Her existing FDs and mutual funds should provide R 5.7 lakh and R 15.3 lakh respectively at retirement. To meet the shortfall of R 114.7 lakh,SIPs of R 15,000 needs to be started in a 70:30 combination of equity to debt in mutual funds. At present this investment is not possible and can be done gradually on salary increments and as an when Nitin starts working.
Rate of return assumed 12% in equity funds and 8% in debt funds
Express Tip: Early retirement planning and allocations for it ensures that you dont have to invest higher amounts in the later years to make up for the shortfall.
We need to be prepared for certain eventualities in life which can affect our entire financial life by draining all savings and thereby impacting present and future goals. Proper risk assessment and risk protection at an early age can mitigate financial losses and provide some stability to achieve your financial goals