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Most of the accumulations from his earnings have been withdrawn to fund the education and marriage requirements of his younger siblings.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

Story continues below this ad

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.

Story continues below this ad

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:

Story continues below this ad

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.

From the homepage