Name: Harshad Phulpagar (32) Resides in Mumbai works in a private company Annual income : Rs 4.80 lakh Status & goals Harshad is a financial savvy person and has invested in many instruments for his financial future. His wife is a homemaker. They have a daughter,who is six months old. The couple plans to have another child in next two years. Harshad does not want to buy a house as his parents have one flat and a weekend bungalow near Mumbai. As Harshads job is non-pensionable,he wants to be sure that whatever arrangements hes made for his financial future is in the right direction and it can take care of his childrens education,marriage and his retirement. Needed A comprehensive financial plan for all goals retirement,insurance planning and childrens future. Monthly Income Rs 40,000 Monthly expenses Rs 20,000 Net monthly surplus Rs 20,000 Current Investments Bank Fixed deposits Rs 1 lakh 2 ULIPs Rs 75,000 per annum 5 Mutual fund schemes Rs 5000 per month 5 Endowment Insurance Plans FINDINGS Emergency fund: Harshad has bank fixed deposit for emergency use only. Life insurance: He has a life insurance cover of Rs 50 lakh through term plan. Health Insurance: He has a family floater cover of Rs 3 lakh. Investments: His investments are scattered in different instruments but having lot of Insurance cum investment plans in his portfolio. Liabilities: He doesnt have any loan liabilities. Provident fund: Along with Regular PF contribution hes started with VPF contribution of Rs 2,500 p.m. since January 2013. Recommendations Emergency fund: He should break his FD and keep at least 30,000 in saving account for immediate liquidity and balance can be kept in FD only or in a liquid fund. Express TIP: Maintaining emergency fund should always be the first and foremost activity in financial planning. Life Insurance: Harshad should buy an additional cover of Rs 25 lakh. He should also discontinue and surrender the endowment and ULIPs as these are very costly investment instruments. But if his finances are not getting disturbed after all advised investments,he may continue with the same. Express TIP: Your life insurance cover should be calculated keeping in mind your goals,family expenses and loan liabilities if any. Health Insurance: Harshads mediclaim of Rs 3 lakh also looks insufficient considering the healthcare costs for a city like Mumbai. He should increase it to Rs 5 lakh and going forward keep on increasing it after every 5 years. The premium outgo for this would be Rs 10,500. Express tip: Your health insurance coverage should be according to the medical expenses for the city you live in. Medical treatment is costly in metros. Accident Insurance: Harshad should also buy an accident policy for sum assured of Rs 40-50 lakh and take additional cover of temporary total disablement to the maximum of his eligibility. The premium for this would be around Rs 6,500. Express tip: Accident coverage is very important insurance to cover the risk of disability and income loss due to accident. Daughters education (2031): Assuming his income growth at 10 per cent,he should start investing Rs 5,000 p.m. in the allocation of 70: 30 (equity: debt) towards this goal. Also he should keep increasing these savings by 10 per cent every year. For equity he may chose equity mutual fund and for debt he may go with PPF or debt mutual fund. Rate of return assumed (Post Tax): Equity 12%,Debt 8% Express tip: It becomes inevitable to increase the allocation of equity when goal tenure is too long,but if one is risk averse he should allocate as per his risk profile. 2nd Childs education (2033): He should start investing Rs 4000/- p.m. into allocation of 70:30 (equity: debt) and keep on increasing the savings by 10% every year. Rate of return assumed (Post Tax): Equity 12%,Debt 8% Express TIP: Education costs increases faster than other expenses. So the earlier you plan,the better. Childrens Marriage (2038/40): Harshad should start investing Rs 1,700 and Rs 1,500 per month in asset allocation of 70:20:10 (Equity: Debt: Gold). Also he should keep on increasing this saving by 10% every year. Rate of return assumed (Post Tax): Equity 12%,Debt 8%,Gold: 8% Express TIP: As we cant expect Indian marriages without gold,so better to plan for the same by allocating some portion of your investment in gold. Retirement Planning (2039): Harshad should start contributing Rs 6,500 per month with 10% increases YoY towards this goal. His investment allocation should be 70:30 (Equity: Debt). For debt allocation hes already contributing in Provident fund. He should stop investing in Voluntary provident fund and divert that saving to equity investments. Rate of return assumed (Post Tax): Equity 12%,Debt 8%,Gold: 8% Express TIP: Employee provident fund is one of the best tools to save for retirement. One should keep on accumulating and never withdraw out of this instrument till retirement. Along with this do have a decent equity exposure. Conclusion One should be clear on his goals and timeframe before entering into any investment product. Dont complicate your portfolio by investing in insurance cum investment instruments. Keep your investments simple and buy insurance separately. Plan By Manikaran Singal, Certified Financial Planner, Member of the Financial Planners Guild,India For expert guidance on your financial planning email us your details at expressmoney@expressindia.com
