Express Clinic

Profession: Finance Manager & Housewife

Net annual income

(Rs 7.50 lakh)

Family – Anirban,10 (Son) and Suchitra,6 (daughter)

Ranjan expects 10 per cent increase in his income. Started investing rather late. Has accumulated some savings.

Status & goals

A 2 bedroom flat without taking a huge loan; Retire comfortably with sufficient corpus after children finish education

Needed

Protection against risks and need advice on the right kind of assets to choose for their financial goals

Net monthly surplus

Rs 16,900

Findings
Emergency fund:

Rs 1,20,000 maintained in savings account. There is a shortfall of Rs 16,000.

Health Insurance:

Company provided family floater mediclaim policy of Rs 3 lakh is not adequate.

Life Insurance:

Rs 14 lakh,Ranjan is covered for Rs 14 lakh through a combination of term and traditional life insurance policies,while Koel does not have any life cover. He is paying a high premium of Rs 24,000 whereas the cover offered is low. Ranjan is under-insured to the extent of Rs 1.4 crore. Life cover for Koel is not suggested.

Investments:

Rs 3.45 lakh,In equity mutual funds,Rs 1.55 lakh in stocks,Rs 1 lakh in FDs and Rs 80,000 in PPF. Decent investments done with a 63 per cent allocation to equity and 37 per cent to debt. Equity and mutual fund returns assumed at 12 per cent and PPF at 8 per cent.

Recommendations
Emergency Fund: Need to maintain at least 3 months of expenses in bank savings account. Presently there is a shortfall of Rs 16,000 which can be covered by a month’s surplus in the bank.

Express Tip: You can avail of the Flexi FD facility of banks to maintain your contingency fund. This will ensure slightly higher return than your savings account and wont compromise on liquidity either.

Health Insurance: Present health insurance cover is not adequate. Ranjan and Koel should each have an individual cover of Rs 5 lakh while for children Rs 2 lakh cover each will suffice. Total premium outgo will be Rs 16,500.

Express Tip: It’s better to have individual health policies over and above the employers’. In the event of a change in job,there will be no medical cover and the new employer may or may not offer similar benefits.

Life Insurance: Considering present lifestyle of family,home loan liability and children’s educational goals,Ranjan should go for a pure term insurance plan of Rs 1.4 crore for a 20-year term. Annual premium outgo will be about Rs 26,000.

Express Tip: Online term insurance today is much more economical than other insurance plans and it serves the need of providing high cover at a nominal cost.

Existing life insurance policies:

Existing traditional life insurance polices should be made paid up and the resulting premium saving can be utilised for the suggested term plans and mediclaim cover.

Debt Management: Since the goal of buying a bigger house is only 2 years away,Ranjan can pre-pay his home loan outstanding by liquidating part of his FD and mutual funds.

Express Tip: In an increasing interest rate scenario,it is prudent to pre pay outstanding home loan otherwise your tenure and interest outgo keeps going up with every increase in interest rate.

Financial Goals Planning
Buying a flat in 2013

Ranjan’s existing house will fetch Rs 45 lakh after 2 years while the 2 BHK flat will cost Rs 74 lakh. Existing investments and 2 years surpluses will result in the corpus reaching Rs 9 lakh at 10 per cent growth. The difference amount of Rs 20 lakh can be availed of by a home loan. Resulting EMI will be Rs 22,100 for a 14 year period at 10 per cent interest.

Express Tip: It is better not to stretch your home loan EMI beyond 40 per cent of your take home salary.

Children’s education

An allocation of Rs 14,000 per month needs to be invested in diversified equity mutual funds for meeting the entire educational requirements of Anirban and Suchitra.

Express Tip: Equity investments,especially diversified mutual funds provide inflation beating returns over long term.

Retirement Planning

With the surplus left after investing in the flat and children’s education,Ranjan will be able to create a retirement corpus of Rs 1.8 crore if his salary increases by 10 per cent p.a. Either he will have to postpone the retirement or re-work on the expenses in order to save more and retire at the age of 55.

Express Tip: Your modest lifestyle and prudent investment of surpluses holds the key to a secure retirement.