Name: Mukesh Kumar
Resides in Chandigarh
Profession: engineer with an Oil and Gas firm
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Status & goals
Mukesh Kumar is an engineer working with an oil and gas firm in Surat,Gujarat. He is single and lives with his father and mother. His parents are financially dependent on him. He wants to plan for his marriage,a new car and his retirement. In terms of existing investments,he has Rs 1,20,000 in his EPF account. He also has Rs 90,000 in savings bank. Mukesh has an exposure to direct equity which is currently valued at Rs 27,000.
A financial roadmap,which can help him plan a better future for him and a secured retired life.
Net monthly surplus
EMERGENCY FUND Mukesh Kumar has an emergency fund which is equal to six months of his expenses.
LIFE INSURANCE: Mukesh is does not have an adequate life insurance cover.
HEALTH INSURANCE He and his family is dependent on his employer for health insurance cover.
INVESTMENTS He has not started any investment from existing surplus.
PROVIDENT FUND He has a good balance in the Employee Provident Fund account.
EMERGENCY FUND Mukesh needs to keep aside Rs 96,000 in savings-linked bank FD or liquid fund and maintain it as an emergency fund. His existing savings bank balance is allocated to this fund.
Express tip: Emergency fund carries utmost importance and helps in managing contingencies like job loss or disability.
LIFE INSURANCE As per need-based analysis,Mukesh should have life insurance coverage of at least Rs 40 lakh. He currently has two policies from LIC and one from ING Life. After taking into account the current surrender value of money back plans,the balance premium payable and the projected maturity value based on the current bonus,the post tax Internal Rate of Return (IRR) of all three plans is below inflation rate. So,he is advised to surrender all the plans. He should buy an online term plan of Rs 40 lakh from TATA AIA,which will cost him around Rs 4,600 per annum. It is advisable to disclose all the facts correctly while applying for fresh insurance. Surrender the plan only after getting the new term plan.
Express tip: Buy life insurance taking into account your current expenses and future goals.
HEALTH INSURANCE Mukesh and his family are covered for health insurance up to Rs 5 lakh from his employer. He should buy a fresh health insurance of Rs 3 lakh sum assured for himself and his mother. He is also advised to buy a top-up plan of Rs 5 lakh with a deductible of Rs 3 lakh for himself and his mother. This will cost him Rs14,700 p.a. His father is diabetic so it will be difficult for him to get new health insurance. So,he should keep employers health insurance cover only for his father.
Express tip: Buy adequate health insurance plan for each member of family as recommended.
DISABILITY INSURANCE Mukesh should also buy online critical illness and accidental disability insurance coverage of at least Rs 25 lakh each. The premium for this would be around Rs 8,200 p.a.
HOUSE RENOVATION (DECEMBER,2013) He is advised to keep Rs 20,000 aside monthly from his current surplus for the next nine months. Additionally,he is advised to sell his direct equity investment and invest the proceeds in liquid fund,which will provide adequately for the renovation.
MARRIAGE (MARCH,2014) He is advised to keep aside Rs 16,000 and invest in Recurring Deposit from his current surplus for a year,this will be adequate for him to meet his marriage expenses in a years time. He can increase this amount after saving for his house renovation.
VEHICLE PURCHASE (2014) We dont advice buying a vehicle unless extremely needed and is a high priority. But since,it is a high priority and has all other goals are long term,he is advised to take a car loan after a year from his employer,which is available without any down payment,for a 5-year tenure with interest rate of around 11 per cent,for which the EMI will be around Rs 15,200. This EMI could instead be used for buying his home if he is willing to give up his vehicle purchase.
COUSINS MARRIAGE (2017) After his immediate high priority goals are taken care of,he is advised to start investing one year from now for other goals. He is advised to start fresh monthly SIP of Rs 11,000 in conservative MIP fund for accumulating adequate corpus when required.
Express tip: When the goal is short term,one should have less allocation in equity and invest more in safer instruments.
RETIREMENT PLANNING (2046) He requires inflation-adjusted corpus of Rs 5.65 crore at the time of retirement at the age of 60. His EPF will give him a corpus of Rs 1.70 crore if he continues to work till retirement. He will have a short fall of about Rs 3.95 crore. To build the balance corpus he should start a monthly SIP of Rs 5,000 in Equity Mutual Fund after a year.
Express tip: When the goal is long term,one should increase the allocation in equity and invest little in safer instruments.
Retirement Age 60 years
Life Expectancy 80 years
Inflation Rate 8%
Portfolio Returns Debt/EPF/PPF 8%
Portfolio Returns Equity 15%
The finalising and prioritising of goals are the pre requisite of the financial planning process. And the early you start working towards them the better you will be positioned in your financial life.
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