8/13/2019 070113_04

1/1

CASE STUDY Every Monday, Business Standard

analyses one familys financesand suggests a suitable way forward

> FAMILY PROFILE

> RECOMMENDATIONS

EMERGENCYFUND:Earmark ~2 lakh from the existing fixed deposits forcontingency requirementsLIFE INSURANCE:Birendra needs an insurance cover of ~1.5 crore,while Payal needs a cover of ~25 lakh. The term can be 20 years andthe total yearly premium will be ~33,000HEALTH INSURANCE:Birendra should take a top-up policy of ~10

lakh, with ~3 lakh as deductible for the family. The annual premiumwill be ~6,500

Plan by Steven Fernandes, certified financial planner

SINGHSBirendra (34), Payal (33), Ayush (5), Father (62)

RESIDEINMumbai

NET ANNUAL INCOME~15.36 lakh

RATING5/10

> GOALS

> PRESENT STATUSEMERGENCY FUND:Contingency fund provided for in the form of

savings account and fixed depositsLIFE INSURANCE:Birendra has a total insurance cover of ~80 lakh,while Payal is covered for ~5 lakh. Both are underinsuredHEALTH INSURANCE:Family is covered through employer familyfloater plan as well as a separate family floater plan of ~5 lakh,which is adequate

INVESTMENTS:A good mix of debt and equity in the portfolioLIABILITIES:Presently servicing a home loan of ~45 lakh, with 13years of balance payment period

Birendra's family is from Delhi and they moved to Mumbai two years

ago, after he got his present job. The family's biggest investment istheir self-occupied property in Mumbai, for which Birendra's fathercontributed some amount from his retirement savings. Birendra'sfather is a retired government officer and gets a good amount of pension; he is also covered under a government medical scheme forlife. Birendra wants to make a plan for paying off his huge home loandebt and to save money for his son's educational requirement.

Retirement is his last priority.

> PLANNINGPREPAYMENT OFHOME LOAN (2020):Birendra needs to start SIPs of ~21,000 in the ratio of 60% debt and 40% equity for a tenure of 7years for this goal

Home loan interest: 10.5% post taxSON'S GRADUATION AND POST-GRADUATION (2026):Need to start SIPsof ~15,000 in balanced mutual funds for this goal

Rate ofreturn expected: 11%SON'S MARRIAGE (2034):Need to invest ~5,000 a month indiversified large-cap fund for this goal. At present, this is notpossible due to allocation of surpluses for other goals.RETIREMENT PLANNING (2029):The EPF and PPF corpus at retirementwill be around ~1.18 crore and ~69 lakh, respectively, assuminginvestment of ~50,000 in PPF every year. Equity funds will be worth

~26 lakh. For the balance corpus, an amount of ~16,000 p.m needs tobe invested in a 70% equity and 30% debt mutual fund portfolio. Atpresent, this allocation is not possible. Any salary increases can beused for this goal. Also, once the home loan prepayment is done, theresulting EMI savings can also be invested for this goal.

Rate ofreturn assumed: 8% in EPF & PPF, 11% on mutual funds portfolio

Current annualretirement expenses:~3.96 lakh

Future annualexpenses:~10.92 lakh

Corpusrequired:~4.17 crore

RETIREMENT PLANNING(2037, inflation 7%, Life expectancy - 85 years)

SON'S GRAD & POST-GRAD(2026, Inflation 10%)Current value: ~15 lakhFuture value: ~51.8 lakh

SON'S MARRIAGE(2034, Inflation 10%)Current dues: ~7.5 lakhFuture value: ~55 lakh

PREPAYMENT OFHOME LOAN(2020, home loan interest 10%)Current dues: ~40 lakh

Birendra works as regional sales manager with a general insurance

firm, while his wife works as a teacher in a private school. They live inMumbai with their son and Birendra's father.

Monthly income: ~1,28,000Basic expenses (~) Per month AnnualHousehold 32,000 3,84,000Children's education 5,000 60,000Home loan 48,357 5,80,287Insurance premium 8,583 1,03,000Total 93,941 11,27,287Net monthly surplus: ~34,059

Assets ~ Liabilities ~Savings account 95,000 Home loan 40,00,000Fixed deposits 3,75,000EPF 5,15,000PPF 2,50,000Equity mutual funds 4,15,000Self-occupied property 1,15,00,000

1,31,50,000 40,00,000Networth 91,50,000