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The Yadav family needs to postpone some goals due to lack of sufficient surplus funds, says Financial Planner Pankaaj Maalde

  • NA,  November 14, 2017  
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Jiya Yadav, 36, lives in Mumbai with his wife Parmila, 39. Jiya is an assistant manager in an insurance company and would like to start his own business. They have two kids, Mayank (9) and Driya (2). The couple has been married for almost 12 years; they live with Jiya's parents. Their monthly income is Rs 85,000. The family wants to go on a world tour and buy a car in the next five years. We suggest a detailed map for their future.

Contingency and Risk Planning

  • Contingency Funding:

Jiya must build a contingency fund equal to three months expenses. His existing saving bank balance is Rs 2 lakh. The money should be invested in an ultra short term fund. He needs to increase it to six months expenses when his income increases. This money should not be used for any other purpose. The key to success is discipline.

  • Life Insurance Planning:
Jiya rightly bought a term plan for Rs 1.95 crore. This is adequate and can continue. Parmila is a home maker and does not require life insurance.
  • Health and Disability Insurance Planning:
The family has a Rs 3 lakh health insurance cover provided by Jiya's employer. This will not continue after retirement or when he leaves his job. That is why he must buy a separate medical cover. If he or any of his family member is diagnosed with an illness, it will become very difficult to get a cover. And even if some insurer agrees to sell him a cover, it may not cover the existing illness, at least for some years.

Jiya should buy a family floater plan for him and family of four for Rs 10 lakh sum assured. This will cost around Rs 20,000 per year. He should continue the employer cover and use it for his parents. He should not forget to port the same to individual policy when he leaves the job, if required.

He should also buy a Rs 25 lakh critical illness cover and Rs 25 lakh accident disability cover for himself. This will cost around Rs. 12,000 per year. The premium up to Rs 25,000 for self and family and additional Rs 30,000 for parents is available as deduction from total income under Section 80-D of the Income Tax Act. Disclose all facts correctly while buying insurance.

  • Investment Planning:
Jiya's real estate exposure is 72 per cent of the total investment. This is too high. He must review this periodically.

Returns from fixed deposits and postal schemes are taxed according to the person's tax slab. This reduces his overall return. This is a good enough reason to stay away from fixed deposits. Direct stock investment markets requires in-depth research and analysis; it is not possible for most people to devote time for this. So, direct equity exposure is not recommended. He should sell these investments go for diversified equity mutual funds.

Goal Planning

  • Retirement:
This goal should not be compromised. Jiya is planning to retire at 60. He will require Rs 4 crore after retirement assuming the couple lives till 80. This assumes household expenses of Rs. 30,000 per month in present terms and 7 per cent inflation. The second home and EPF money can be used to build the retirement fund. Their current value is Rs 30 lakh and Rs 6.5 lakh, respectively, which will grow to Rs 2.95 crore and Rs 1 crore, respectively, over 24 years, assuming he works till 60 and keeps contributing to the EPF account. He should also review his real estate investment periodically. No additional investment is required to build the desired corpus.
  • Education Funding:
The existing investment in direct equities and mutual funds can be used to build an education fund of Rs 20 lakh in today's value for son Mayank (future value Rs 37 lakh) at the age of 18. He should increase monthly investment in equity mutual funds to Rs. 14,000 from Rs 11,000 at present to accumulate the desired corpus. The current values of direct equity and equity funds are Rs 1 lakh and Rs 2.5 lakh, respectively, which will grow to Rs 2.77 lakh and Rs 6.93 lakh, respectively, over a period of nine years at 12 per cent . He should start a fresh monthly SIP of Rs 10,250 in an equity scheme of a mutual fund to build the education fund of Rs 20 lakh in today's value for his daughter Driya (future value Rs 59 lakh) when she turns 18. At present, he can start with Rs 5,000 and increase it as his income rises.Marriage Funding: To build a fund of Rs 20 lakh in today's value for his son Mayank (future value Rs 59 lakh) at 25, he has to start a fresh monthly SIP of Rs 12,000. To build a marriage fund of Rs 20 lakh in today's value for his daughter (future value Rs 95 lakh) at 25, he has to start fresh monthly SIP of Rs 8,000. As there is no surplus available to fund this goal, he is advised to start investing when his income increases in future.
  • Car Purchase:
Jiya would like to buy a car after five years. This will cost him Rs 10 lakh in present terms. The goal is not realistic looking at the present assets and surplus. He needs to lower the value of the car or buy a second-hand car. He needs to postpone this goal till his income increases substantially in future.
  • Dream Vacation:
Jiya wants to go on a dream vacation with his family after five years which will cost him around Rs 5 lakh in present terms. There is no surplus available for this goal. The plan is presented on the basis of information and details provided by him. He is advised to review the plan and rebalance his portfolio periodically, preferably every year.

As told to Priyadarshini Maji

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