Express Clinic

2020 Inflation 10

Current Value

R 10 lakh

Future value

R 21 lakh

Daughters Higher Education

2024 Inflation 10

Current value

R 12 lakh

Future Value

R 38 lakh

Daughters Marriage

2027,Inflation 7

Current Value

R 15 lakh

Future Value

R 41 lakh

Retirement Planning

Pre-retirement Inflation at 7,life expectancy 83 years

Present monthly expenses

R 25,000

Future value

R 84,500

Corpus required

R 1.91 crore

Current Investments:

PPF : Rs 3.5 lakh

EPF : Rs 5.9 lakh

Savings account : Rs 2.5 lakh

Equity MFs : R 3 lakh

Gold : Rs 2.5 lakh

Insurance surrender value: Rs 5 lakh

Findings

Emergency fund: Javendra maintains

Rs 2.5 lakh in his savings account at all times.

Health Insurance:An standalone family floater policy of Rs 2.5 lakh sum assured.

Life Insurance:Covered for Rs 7.5 lakh through three ULIP policies in which he has stopped contributing further premiums after paying for a few years.

Liabilities: Nil

Recommendations

Emergency Fund:Since Javendra is maintaining 6 months expenses in his savings account,no enhancement is recommended.

Express Tip:An emergency fund should be able to cover bare essentials such as the mortgage,utilities,food,insurance premiums,childcare costs and everything you need to keep your life running.

Life Insurance: Javendras insurance need is R 72 lakh. This can be met through a term plan for which he will have to pay Rs 25,000 p.a.

Express Tip: A pure life insurance is the most economical tool to provide adequate financial protection to your family from any mishappenings which may occur in the future.

Health Insurance: Javendra should enhance his health insurance to Rs 5 lakh for entire family which will cost him Rs 13,600 annually.

Express Tip: It is essential to avail adequate health cover,to reduce the risk of financial difficulties in the event of a major illness or hospitalisation.

Daughters Education: Allocating PPF maturing in 2021 will give him a corpus of Rs 10 lakh. To bridge the shortfall,a monthly investment of Rs 7,000 is recommended in diversified equity mutual funds.

Return assumed 12 p.a.

Express Tip: With benefit of EEE i.e. contribution,interest and maturity exempted from tax,PPF is a viable tool to include in your child planning.

Daughters Higher Education: Since it is difficult to allocate adequate surplus,presen-tly towards this goal,Javendra should start investing as and when there is an increase in savings. For meeting the shortfall he can opt for the education loan.

Express Tip: Education loan is the most cost effective means to fund your childs education if you are unable to generate the required surplus.

Daughters Marriage: Allocating existing equity MF and gold investment will give a corpus of Rs 25 lakh. For the balance corpus,a monthly investment of

Rs 3,500 is recommended in diversified equity mutual fund schemes.

Return assumed 12 p.a.

Express Tip Gold fares poorly when compared to real estate or shares on the basis of real inflation adjusted returns. Have a limited exposure and invest in it to hedge inflation.

Retirement Planning:Javendra will receive R 1 crore from his EPF,if continued till retirement. He should surrender existing ULIP policies as he has stopped contributing and invest the proceeds into equity MFs. This will fetch him Rs 35 lakh. Since there is no surplus left to allocate further,Javendra will have to analyse other options for meeting the shortfall.

Return assumed: 12 p.a.

Express Tip:A tax free income and compounding fixed returns makes EPF a great tool for retirement planning.

Conclusion

Asset allocation helps you in getting a judicious mix of various asset classes as per your goal horizon and risk taking ability. By following this approach you not only achieve the desired results from your investments but also avoid making common mistakes of over investing in a single asset class.