Financial Plan - 2

Name: Shantanu, 31 Manjari, 27

Resides in: Pune

Profession: Shantanu is a lecturer in PU, and Manjari is pursuing a PhD

Net annual income - (Rs 7.34 lakh)

Status & goals

Their key goals are planning for the future of their child (yet to be born), buying their own home and also adequate income after retirement. Currently they do not have much investment and almost all their savings are lying in bank fixed deposits and saving bank account.

Needed

A financial plan that can help them channelise their savings towards their goals

Net monthly surplus - Rs 44,000

Current investments

Savings Bank Balance- Rs 40,000

Fixed deposits - Rs 1 lakh, PPF- Rs 20,000

Findings

Emergency Fund - Rs 40,000 is available in savings bank account for contingency. This can take care of 2 months of regular expenses.

Health insurance - Rs 1 lakh from Shantanu's institute covering the family and family floater cover of Rs 3 lakh covering both of them.

Life Insurance - Shantanu has combined insurance cover of Rs 5.10 lakh from 3 LIC policies where as wife Manjari has insurance cover of Rs 50,000 from TATA AIG.

Investment Asset Allocation - All their monthly investments are lying in safe investment vehicle, thus compromising on growth aspect.

Recommendations

Emergency Fund

Increase saving account balance to Rs 85,000 as emergency fund, which will cover 5 months of regular expenses in any adverse situation. Additionally Rs 4,500 per month should be put in a recurring deposit account to pay for future maternity expenses. The same amount will be used for the increased monthly cost after the child is born.

Express Tip: Don't keep more than 3-6 months of expenses in ready to use form for emergency fund. Excess amount lying there will hamper long-term growth of overall portfolio.

Health Insurance

During renewal they should consider converting their existing family floater cover of Rs 3 lakh to individual cover for both of them. This should cost around Rs 7,600 per annum. Shantanu should also consider taking individual health for his parents of Rs 2 lakh each costing around Rs 21,200 per annum.

Express Tip: Relying on Employer provided insurance completely can be risky, especially at a higher age.

Life Insurance

Shantanu and Manjari should discontinue their respective endowment and money back plan. A term insurance of R 60 lakh and R 28 lakh is recommended for Shantanu and Manjari respectively. They should go for an online policy which offers low premium. However they need to review their insurance needs upon birth of their first child and taking house loan.

Express Tip: Segregate insurance and investment needs. Insurance is meant for family protection. Capital growth can be compromised due to high charge structure.

Child education and marriage

Current income is not enough to allow for any saving towards this goal.

Express Tip: In the absence of adequate income, planning for lower priority goals can wait till an increase in income or a windfall gain such as an bonus or an inheritance.

Retirement

The inflation linked corpus required for them will be Rs 2.60 crore. To accumulate the said corpus they require investment of Rs 2,700 per month in good diversified equity mutual fund and Rs 500 in a gold mutual fund.

Express Tip: This should be considered as most important goal.

House Purchase

In order to accumulate corpus of Rs 44 lakh towards down payment (40%) of house purchase in next 7 years and then afford the EMI for the balance amount of loan, they require monthly investment of Rs 33,500 in a MF.

Express Tip: Own house purchase is a very important goal that requires proper and thoughtful planning. Be focused and keep saving and investing.

Car Purchase

The current income is not enough to allow for any saving towards this goal. The existing fixed deposit of Rs 1 lakh can be kept towards the down payment of the car should the income in future allow for a car loan.

Existing Investments

Continue with their existing investments in MF schemes and PPF. However, there should be higher allocation towards equity for their long term goals. Exit Endowment and Money Back plans as they do not meet your insurance objective. Instead go for online term plan.

Conclusion

It is important that you follow the recommendations diligently and be patient with your investments to bear fruit. Follow asset allocation, make provisions for the emergencies and review your Financial Plan periodically.

Source – Indian Express