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This is an archive article published on May 9, 2011

Jaspreet family future plan

Jaspreet works with an MNC and is blessed with a 4 year old daughter. He has been investing regularly for last few years and has diversified in various asset classes. He is one of those cautious investors who has understood the need of insurance in ones life and so bought a high insurance cover to protect his family from any unforeseen events. Although he is running liabilities on his side,he will be comfortably repaying all his loans in few years. He has been gradually increasing exposure to equities,which makes us believe,he understands benefit of this asset class in long term. He understands that equity as an asset class is likely to give best return over longer period.

The point of concern with Jaspreet is that none of his investments are aligned with any of his life goals. What amazed us most,despite he being an informed investor,is non-maintenance of emergency funds. With loan liabilities still running and virtually no planning for his financial goals,this poses the biggest risk to his family in case of any unexpected happening. Concerned for his family and understanding the implications of not reaching his desired life goal,he now wants to draw a roadmap to begin the process of securing his familys future.

Investments

Stocks nill

Mutual funds

Rs 60,000

Life insurance premium

Rs 1,49,000

Cover Rs 1.15 crore

Retirement savings EPF

Rs 3,00,000

Property

Rs 37,00,000

Total investments

Rs 42,09,000

Monthly cash flow

Rs 10,00,000 Post Tax

Expenses

Housing loan Rs 92,400

Car loan Rs 1,02,000

Life insurance Rs 19,000

Health insurance

Rs 3,700

ULIPs rs 30,000

MF contribution

Rs 1,20,000

Household expenses

Rs 2,40,000

Total expenditure

rs 6,07,100

Total monthly surplus

Rs 32,741

Financial Goals

Fulfilling loan obligation

Daughters education 2023

Rs 25,00,000

Daughters marriage 2031

Rs 25,00,000

Retirement Planning

2032-33

Desired retirement corpus

Rs 5 crore

Findings

Emergency fund:

No emergencycorpus maintained at present.

Health insurance:

Family covered for Rs 2 lakh from employer.

Additionally covered for Rs 3 Lakh from a standalone policy.

Life insurance:

Adequately insured with a risk cover of Rs 1.15 crore Insurance requirement by human life method Rs 1.40 crore

Existing investments:

Investments are well diversified but not aligned to financial goals.

Deferred pension plan like LIC Market Plus creates good corpus only if managed efficiently.

Although child ULIP is costly but since invested for long term,will help in meeting the desired goal.

Current equity exposure implies he has high risk taking ability.

Recommendations

Meeting loan obligation

Continue with loan obligation for some time.

Any surplus received by way of bonus/incentive can be utilised for repayment.

Emergency Fund Rs 25,000 pm

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Allocate Rs 25,000 pm for six months. Invest Rs 2.5 lakh in money manager funds and keep rest in savings a/c.

Express Tip

Emergency fund helps in meeting any kind of unexpected expenses should something goes wrong. Ideally,one should be able to meet 4-6 months of living expenses.

Childs education and marriage Rs 72,000 pa

Investment to be allocated from existing SIPs for childs education is Rs 72,000 pa.

Investment to be allocated,in addition to ULIP,for childs marriage Rs 18,000 pa Return assumed 12 pa

Express Tip

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The cost of raising a child goes up quite quickly. Its important you plan your finances well in advance.

Health insurance Rs 5 lakh,Scale up your standalone health insurance to Rs 5 lakh.

Express Tip

Health insurance reaps benefits only after three years of continuation and employer policy ceases with job change.

Life insurance

No additional cover is recommended

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