Name: Prabhuling Dandin Phonda,Goa Profession: Associate Professor Net annual income (Rs 10 lakh) Status & goals Dandin is working as an Associate Professor with a reputed college in Phonda,Goa. His primary intention of making his financial plan is to provide funding for his 2nd daughters education and marriage and then a comfortable retirement for himself and his spouse. His first daughter is already in her last year of post graduation. Dandin is also seeking advice on prepayment of his home loan. Needed A financial plan that will let him create corpus for his children and can have comfortable post-retirement life. Net monthly surplus Rs 37,500 Current Investments PPF : Rs 3.5 lakh each EPF: Rs 7 Lakh Fixed deposits: Rs 5.6 lakh Insurance Cash value:Rs 15 lakh Savings account:Rs 5 lakh Current Liabilities Rs 16 lakh (Rs 12 lakh home loan & Rs 4 lakh car loan) RecommendationsEmergency Fund Need to maintain R 2 lakh for emergency fund purpose in savings Express Tip: Emergency funds deployment in liquid assets enables faster liquidity in times of need. 3 months of expenses should be maintained by a family enjoying stable income. Health Insurance Prabhuling and his spouse should each take an individual cover of R 5 lakh and R 2 lakh for their daughters through a separate mediclaim plan. Annual premium R 18,000. Express Tip: Due to increasing healthcare costs and changing lifestyle,it's prudent to have a higher medical cover Life Insurance As per the expense replacement method there is a shortfall of R 53 lakh in life cover for Prabhuling which can be secured by buying pure term insurance plan. Annual premium will be approx R 22,000. Existing traditional policies which have been purchased 3-5 years back can be made paid up and the resulting premium savings can be utilised for the new cover. Express Tip: Term insurance is the most economical way to cover any liabilities or income loss Educational funding of 2nd daughter (2016) This goal can be easily met by allocating Rs 1.13 lakh from the FDs. Rate of return assumed 6.67% p.a post tax Express Tip:Short term goals should be ideally invested in safe and guaranteed return investments. 1st Daughters Marriage funding (2015) Allocate R 3 lakh from FD and start a recurring deposit of R 4,000 for 3 years for this goal Rate of return assumed 6% post tax Express Tip:One should avoid taking any risk with investments when your goals are short term. 2nd Daughters Marriage funding (2020) Since the goal is of a long term nature,start an SIP of R 7,400 in a balanced equity fund. Rate of return assumed 10% Express Tip: A judicious mix of debt and equity gives steady returns alongwith providing diversification for long term goals. Prepayment of loans Prabhuling should utilise the additional cash in the savings account and a part of the fixed deposit to pay off the car loan immediately. This will enable an additional saving of R 10,000 pm. This saving should be utilsed along with annual increments to pre pay the home loan over the next 3-5 years Express Tip: Homeloan is the cheapest form of loan and helps create an asset and provides tax benefits. At the same time overleveraging should be avoided. Retirement Funding (2045) Prabhuling's existing investments and with the current annual allocation of R 30,000 in EPF and R 1,00,000 in PPF respectively will fetch him a corpus of R 57.9 lakh at retirement. For the balance shortfall he needs to start an SIP of R 10,500 in 2 balanced equity funds. Rate of return assumed: PPF & EPF - 8%, Balanced MF - 10% Express Tip: The tax efficient investments of PPF and EPF are forced savings and should be kept for retirement as the compounding effect ensures a good tax free corpus. Conclusion Allocation of money to insurance policies and debt instruments depr-ives the investor from growth. Asset allocation drawn at an early stage enables one to combine financial goals with the right investments.
