Express Clinic

Profession: employed with state government

Net annual income

(Rs 19.20 lakh)

Status & goals

Surjeet works as a General Manager in a state government department. His spouse Gurjeet is a homemaker. They have 2 kids,Harman (25) and Simran (21). Last Year Surjeet had a bypass heart surgery and since then he’s worried about his health and family’s future. Simran is still studying and Harman is not yet settled. Surjeet wants to help Harman in opening a book shop and plan for both of his kids’ marriage and his own retirement.

Needed

A roadmap that will allow Surjeet to create a corpus that will take care of his family,should something happens to him due to poor health

Net monthly surplus

Rs 78,000

Current Investments:

Savings Account : R 1 lakh

Bank Fixed deposits : R 12 lakh

Commercial property : R 80 lakh

ULIPs : R 10 lakh

Mutual funds : R 7 lakh

Expected Retirement

benefits : R 60 lakh

Pension on VRS

expected : R 80,000 pm

Findings

Emergency fund: He does not like to keep excess money in savings account as it does not generate enough interest.

Life Insurance: He only has some ULIPs in his portfolio in the name of insurance.

Health insurance: He’s adequately covered under government scheme,but is not aware of the fact that children will be out of this coverage once they reach 25 years of age

Investments: His investments are diversified across asset classes,but a large chunk of the same is in a commercial property which he’s bought with the objective of settling his son.

Recommendations

Emergency Fund: He needs to break his FD and take out R 2 lakh from it and park it in a savings account in addition to present balance and maintain as an emergency fund.

Express tip: There are many emergencies which require immediate cash,so even though your savings account does not generate high interest it is worth keeping money in that. Alternatively one can opt for liquid mutual funds or FD linked savings account.

Life Insurance: Surjeet does not require any life insurance coverage. His current assets and expected retirement benefits will take care of his responsibilities.

Express tip: Your financial situation provides an indication on what amount of life coverage would be adequate for you. This requirement keeps on decreasing with the accumulation of investments and assets.

Health Insurance: He need not buy any health insurance coverage as he’s adequately covered under government sponsored scheme but as Harman will soon be out of this and he’s still dependent on Surjeet,he should buy a health insurance for him. The premium at his age for R 5 lakh sum assured would be around R 6,000 pa.

Express tip: Even if one is a government employee,he should keep an eye on when his immediate dependents would be out of his insurance coverage. To keep financials in order it is important that all of the family members should be adequately covered.

Accident Insurance: Surjeet does not need any accidental insurance coverage as his savings and retirement benefits will take care of financials in case of any mishap.

Express tip: Disability coverage is very important in today’s kind of fast lifestyle. But if you have sufficient assets and savings then you can avoid it.

Goals

Children’s Marriage (2015/ 16): He should allocate his bank fixed deposit and ULIPs for these goals. He should withdraw his entire bank FDs and ULIPs and invest the proceeds again in bank FDs in the name of Harman and Simran respectively. This will help in reducing the tax burden too.

Rate of return assumed 8% post tax.

Express tip: Along with investments one should also be clear on tax aspect since only post-tax returns matter in any kind of investments.

Harman’s Business (2015): Surjeet can use his retirement benefits to achieve this goal. He may gift the required amount to Harman or loan him this amount to start off his business.

Express tip: On one side loan creates liability but it also helps in inculcating discipline in financial life as it makes borrower understand the value of money. And if taken from a family member,any delay in repayment will not affect the credit score.

Retirement Planning (2013): Surjeet has adequate arrangements for his retirement. He can comfortably take voluntary retirement. His inflation linked pension will take care of his regular inflow needs. The interest or dividends he will receive after investing the other lump sum retirement benefits,will supplement his annual inflow.

Express tip: EPF/ GPF,gratuity and other retirement benefits which come out of your regular job,helps a lot in supplementing your other savings for retirement. Thus one should continue EPF/ GPF till retirement without any withdrawal or break.