Express Clinic

Profession: Atul works in a shipping company and Shobhana is a housewife

Net monthly income

(Rs 35,000)

Status & goals

Atul has been in the shipping industry for the last 11 years. Three years into marriage,They live in a rented accommodation in suburbs of Navi Mumbai. They want to plan for their son aryaman’s education and marriage and aim to purchase a small house in five years. Atul has just finished his responsibilities towards his younger siblings and now wants to start planning his own life

Needed

A roadmap that can help Atul plan for his son’s education and marriage and buy a house in next five years

Net monthly surplus

Rs 15,000

Life insurance coverage:

Atul: Rs 4.5 lakh

Shobhana: NIL

Total premium paid: Rs 27,000 pa

Findings

Emergency fund:

Atul has various FDs amounting to R 2 lakh. Bank balance is R 7,000. Three months of expenses including rent amount to R 54,000. They have sufficient liquidity.

Health insurance: They have no health insurance.

Life insurance:

Atul has several small endowment policies. The total risk cover is about R 4.5 lakh for which he pays a premium of R 27,000 annually. There is a huge gap in the risk cover.

Investments:

Most of the accumulations from his earnings have been withdrawn to fund the education and marriage requirements of his younger siblings.

Retirement:

Atul and Shobhana have not focused at retirement at all as they were busy in family responsibilities till recently. There is no focused accumulation towards this goal.

Liabilities: They are totally debt free.

Recommendations

Emergency fund: They should keep only about R 50,000 in FD’s. Another R 50,000 should preferably be in form of FD linked to savings account for ease of withdrawal. The balance R 1 lakh should be moved to a liquid fund.

Express tip: Ease of withdrawal should be taken care of in keeping these funds.

Health insurance:

An individual cover of R 5 lakh each for Atul,Shobhana and Aryaman should cost about R 15,000 annually.

Express Tip: Lack or shortfall in health insurance might wipe out savings and lead you to debt in extreme cases.

Life insurance:

Atul should review his existing life insurance policies and check options for surrender or making the policies paid up. He should immediately opt for a term insurance cover of R 75 lakh (cost about R 11,000 p.a)

Express Tip: Term insurance gives big risk cover for a nominal premium.

Child Goals:

For accumulating R 50.54 lakh for Aryaman’s education in 17 years,Atul will have to invest R 5,500 pm. For his marriage goal,the investment required is only R 1,000 pm. For both these goals he should use equity mutual funds as the goals are very long term.

Retirement:

Atul will have to accumulate R 3.3 crore as his nest egg to support him and his wife till the age of 85. Insurance policies will give R 10 lakh,PPF should give R 36.5 lakh and EPF R 68.84 lakh. The balance accumulation of R 1.15 crore will require an investment of R 6,700 pm earning 15 per cent.

Express Tip: Retirement corpus building is a long term goal. All long term products should be aligned to this goal.

Purchase of House: His postal RD will mature next year giving him R 1.49 lakh. This can be put into an FD. At 9 per cent the FD will mature to about R 2.12 lakh in 4 years. His investment of R 1 lakh in liquid fund can also be added to this goal. This will give about R 1.46 lakh in five years. For the balance R 3.75 lakh,he should invest R 5,000 p.m. in a mutual fund with 70:30 debt-equity ratio. His eligibility for home loan will depend on his income at that point in time. Another R 24,000 p.a. will be available next year when the postal RD matures. The total outlay for all his goals needs an investment of R 3 lakh p.a. Currently the surplus available is R 1.53 lakh. As his salary increases,he should increase the allocation. If Shobhana can pitch-in by contributing some income,it will be easier for them to meet all their goals.