Are Sharmas making right financial moves to achieve their goals?
Source: IRIS Exclusive (01-MAR-13)
My Money' initiative by Myiris.com aims to put your family finances in order with the help of our panel of experts. Through this we seek to help individuals become financially literate by making them understand the various financial instruments and provide them with personalized financial planning information tailored to their own situations & goals. Whether an individual wants to develop a portfolio, plan for retirement, pay for college, or reach any other major financial goal, we will encourage them to seek the information, expertise, experience, and discipline provided by a financial advisor.
In the first case of this new series, Pooja Chopra Goel tries to figure out a smart financial path for our reader Ashish Sharma and his wife Kimaya to successfully achieve their goals with the help of our panel of experts. The couple knows what they want from life. How will they realise their dreams?
After analyzing their portfolio, Pankaaj Maalde, CFPCM, Head - Financial Planning, ApnaPaisa.com, said, ''The saving ratio and zero liability are key positives in the couple's portfolio, while inadequate life insurance, no health insurance and surplus/idle funds are key negatives.'' Here is the detailed financial plan for the couple by Pankaaj Maalde.
MEET THE COUPLE
Ashish and his wife Kimaya both are earning members of their family of two. They stay in their owned-house at Gandhidham. Both put together earn a take-home monthly income of Rs 1.66 lakhs. Their monthly outflow is Rs 79,000 which includes household expenses, lifestyle expenses and regular insurance premiums. This leaves them with an investible surplus of Rs 87,000 per month out of which they invest Rs 1 lakh every year in each's PPF account.
In terms of existing investments they have balance in PPF of Rs 14.18 lakhs. They also have Rs 1.72 lakhs in savings account and Rs 68,000 cash on hand. They also have bank FD of Rs 1.80 lakhs and gold ETF investment of Rs 1.46 lakhs. They have an exposure to equity of Rs 38,000 through direct equity and Rs 1.06 lakhs via mutual funds. They also have investment in a residential plot of land of Rs 8 lakhs. They do not have any liability.
CONTINGENCY PLANNING
Current monthly regular expenses (after recommendations) towards household, lifestyle and insurance premium amount to Rs 79,400. This amount will be needed any way every month in an emergency and we recommend keeping aside a sum equal to 6 months expenses. Their existing savings account balance, cash on hand and bank fixed deposit amounting to Rs 4.20 lakhs are allocated towards emergency fund. The amount can be invested in liquid plus funds or savings linked bank FDs.
INSURANCE PLANNING
Ashish has total life insurance cover of Rs 31 lakhs comprising of five traditional plans from LIC. They pay total insurance premium of Rs 1.02 lakhs annually. After taking into account the current surrender value, the balance premium payable and the projected maturity value based on the current bonus, the post tax Internal Rate of Return (IRR) for four traditional policies is above inflation rate. Hence they can continue these four traditional plans, whereas the IRR for Jeevan Anand plan is below inflation rate and therefore they should discontinue the same. The policy has not acquired surrender value as they have paid only one premium and are unlikely to get anything out of the premium paid. Considering Ashish's current income along with present investment and financial obligations and future goals he requires additional life insurance cover of Rs 20 million. He should buy online term plan, which will cost a total of Rs 16,600 p.a.
HEALTH INSURANCE
They do not have any health cover. A serious illness could be catastrophic to their financial well being. Therefore, it is imperative they have adequate medical insurance coverage. It is recommended that they should buy an individual health cover for both for Rs 5 lakhs sum assured. They are also recommended to buy a top-up health cover of Rs 15 lakhs, with a deductible of Rs 5 lakhs for both them in a family floater plan. This will cost them Rs 20,650 p.a. Additionally, Ashish is advised to take an accidental death cum disability and online critical illness insurance for Rs 50 lakhs sum assured for himself. The annual premium for both the plan is Rs 17,650.
RETIREMENT PLANNING
The expected monthly expense of the family will be Rs 8 lakhs at the time of retirement, based on the current monthly living expenses after factoring in inflation at 8% p.a. The inflation-linked corpus required for this target will be Rs 207.5 million at the time of retirement and this will suffice till 80 years of spouse's age. Their PPF account will grow to a corpus of around Rs 14.3 million. Their plot of land, existing mutual fund, direct equity investment and maturity proceeds of LIC plans has been allocated towards this goal. The maturity proceeds of LIC plans needs to be reinvested in balanced fund thereafter till retirement. We strongly believe that direct investment through stock markets requires in depth research and analysis and individually it is not possible for us to do that and devote time for that. We do not recommend direct equity investment. We advise to them to sell all the equity shares and invest in diversified equity mutual fund scheme. For accumulating the balance corpus, they have to start a fresh SIP of Rs 28,000 in diversified equity mutual fund scheme till retirement.
CHILD'S FUTURE PLANNING
Couple is planning for their first child after one year and wants to provide for unborn child's higher education and marriage. It is estimated that they will need funds for graduation, higher graduation and marriage in a time frame of 20, 22 and 27 years from now. They want to provide for graduation, higher graduation and marriage in present value of Rs 15 lakhs, Rs 20 lakhs and Rs 25 lakhs respectively. They need to start monthly SIP of Rs 5,200 and Rs 6,000 in equity mutual fund and PPF in a ratio of 90:10, for child's graduation, higher graduation respectively. Their investment in gold ETF is allocated to marriage goal. Additionally, they are required to start monthly SIP of Rs 5,000 in diversified equity mutual fund scheme for building the balance corpus for child's marriage.
DREAM VACATION
They wish to go for a dream vacation costing Rs 5 lakhs at present after 3 years. They should start fresh monthly SIP of Rs 25,500 in MIP fund for 2 years (withdraw after third year) to accumulate the desired corpus for dream vacation.
TAX PLANNING
Their tax saving requirements are covered in their PPF and insurance premium getting totally utilized under section 80C. This will need to be re-evaluated in accordance with DTC (Direct Tax Code) as & when it is enacted. Both of them can also take tax benefit of Rs 15,000 each u/s 80-D for health insurance premiums.
GOALS
> Dream Vacation: Rs 6.65 lakhs* in the year 2016
> Child's Graduation: Rs 70 lakhs* in the year 2033
> Child's Post Graduation: Rs 10.9 million* in the year 2035
> Child Marriage: Rs 20 million* in the year 2040
> Retirement Corpus: Rs 207.5 million* in the year 2043
*All figures at future value after taking into account inflation
PLAN ASSUMPTION
Inflation rate for all financial goals: 8% p.a.
Return on PPF/Gold: 8% p.a.
Return on MIP fund: 9% p.a.
Return on equity fund: 15% p.a.
MF SCHEMES RECOMMENDED: (DIRECT - GROWTH OPTION)
> HDFC Long Term MIP Fund
> ICICI Pru Bluechip Focused Fund
> Reliance Equity Opportunity Fund
> Birlasunlife Sunlife Dividend Yield Fund
The plan is presented on the basis of information and details provided by the couple. They are advised to review and rebalance their portfolio periodically, preferably every year. Take professional help in review process which will help them a lot.
Source: IRIS Exclusive (01-MAR-13)
My Money' initiative by Myiris.com aims to put your family finances in order with the help of our panel of experts. Through this we seek to help individuals become financially literate by making them understand the various financial instruments and provide them with personalized financial planning information tailored to their own situations & goals. Whether an individual wants to develop a portfolio, plan for retirement, pay for college, or reach any other major financial goal, we will encourage them to seek the information, expertise, experience, and discipline provided by a financial advisor.
In the first case of this new series, Pooja Chopra Goel tries to figure out a smart financial path for our reader Ashish Sharma and his wife Kimaya to successfully achieve their goals with the help of our panel of experts. The couple knows what they want from life. How will they realise their dreams?
After analyzing their portfolio, Pankaaj Maalde, CFPCM, Head - Financial Planning, ApnaPaisa.com, said, ''The saving ratio and zero liability are key positives in the couple's portfolio, while inadequate life insurance, no health insurance and surplus/idle funds are key negatives.'' Here is the detailed financial plan for the couple by Pankaaj Maalde.MEET THE COUPLE
Ashish and his wife Kimaya both are earning members of their family of two. They stay in their owned-house at Gandhidham. Both put together earn a take-home monthly income of Rs 1.66 lakhs. Their monthly outflow is Rs 79,000 which includes household expenses, lifestyle expenses and regular insurance premiums. This leaves them with an investible surplus of Rs 87,000 per month out of which they invest Rs 1 lakh every year in each's PPF account.
In terms of existing investments they have balance in PPF of Rs 14.18 lakhs. They also have Rs 1.72 lakhs in savings account and Rs 68,000 cash on hand. They also have bank FD of Rs 1.80 lakhs and gold ETF investment of Rs 1.46 lakhs. They have an exposure to equity of Rs 38,000 through direct equity and Rs 1.06 lakhs via mutual funds. They also have investment in a residential plot of land of Rs 8 lakhs. They do not have any liability.CONTINGENCY PLANNING
Current monthly regular expenses (after recommendations) towards household, lifestyle and insurance premium amount to Rs 79,400. This amount will be needed any way every month in an emergency and we recommend keeping aside a sum equal to 6 months expenses. Their existing savings account balance, cash on hand and bank fixed deposit amounting to Rs 4.20 lakhs are allocated towards emergency fund. The amount can be invested in liquid plus funds or savings linked bank FDs.
INSURANCE PLANNING
Ashish has total life insurance cover of Rs 31 lakhs comprising of five traditional plans from LIC. They pay total insurance premium of Rs 1.02 lakhs annually. After taking into account the current surrender value, the balance premium payable and the projected maturity value based on the current bonus, the post tax Internal Rate of Return (IRR) for four traditional policies is above inflation rate. Hence they can continue these four traditional plans, whereas the IRR for Jeevan Anand plan is below inflation rate and therefore they should discontinue the same. The policy has not acquired surrender value as they have paid only one premium and are unlikely to get anything out of the premium paid. Considering Ashish's current income along with present investment and financial obligations and future goals he requires additional life insurance cover of Rs 20 million. He should buy online term plan, which will cost a total of Rs 16,600 p.a.
HEALTH INSURANCE
They do not have any health cover. A serious illness could be catastrophic to their financial well being. Therefore, it is imperative they have adequate medical insurance coverage. It is recommended that they should buy an individual health cover for both for Rs 5 lakhs sum assured. They are also recommended to buy a top-up health cover of Rs 15 lakhs, with a deductible of Rs 5 lakhs for both them in a family floater plan. This will cost them Rs 20,650 p.a. Additionally, Ashish is advised to take an accidental death cum disability and online critical illness insurance for Rs 50 lakhs sum assured for himself. The annual premium for both the plan is Rs 17,650.
RETIREMENT PLANNING
The expected monthly expense of the family will be Rs 8 lakhs at the time of retirement, based on the current monthly living expenses after factoring in inflation at 8% p.a. The inflation-linked corpus required for this target will be Rs 207.5 million at the time of retirement and this will suffice till 80 years of spouse's age. Their PPF account will grow to a corpus of around Rs 14.3 million. Their plot of land, existing mutual fund, direct equity investment and maturity proceeds of LIC plans has been allocated towards this goal. The maturity proceeds of LIC plans needs to be reinvested in balanced fund thereafter till retirement. We strongly believe that direct investment through stock markets requires in depth research and analysis and individually it is not possible for us to do that and devote time for that. We do not recommend direct equity investment. We advise to them to sell all the equity shares and invest in diversified equity mutual fund scheme. For accumulating the balance corpus, they have to start a fresh SIP of Rs 28,000 in diversified equity mutual fund scheme till retirement.
CHILD'S FUTURE PLANNING
Couple is planning for their first child after one year and wants to provide for unborn child's higher education and marriage. It is estimated that they will need funds for graduation, higher graduation and marriage in a time frame of 20, 22 and 27 years from now. They want to provide for graduation, higher graduation and marriage in present value of Rs 15 lakhs, Rs 20 lakhs and Rs 25 lakhs respectively. They need to start monthly SIP of Rs 5,200 and Rs 6,000 in equity mutual fund and PPF in a ratio of 90:10, for child's graduation, higher graduation respectively. Their investment in gold ETF is allocated to marriage goal. Additionally, they are required to start monthly SIP of Rs 5,000 in diversified equity mutual fund scheme for building the balance corpus for child's marriage.
DREAM VACATION
They wish to go for a dream vacation costing Rs 5 lakhs at present after 3 years. They should start fresh monthly SIP of Rs 25,500 in MIP fund for 2 years (withdraw after third year) to accumulate the desired corpus for dream vacation.
TAX PLANNING
Their tax saving requirements are covered in their PPF and insurance premium getting totally utilized under section 80C. This will need to be re-evaluated in accordance with DTC (Direct Tax Code) as & when it is enacted. Both of them can also take tax benefit of Rs 15,000 each u/s 80-D for health insurance premiums.
GOALS
> Dream Vacation: Rs 6.65 lakhs* in the year 2016
> Child's Graduation: Rs 70 lakhs* in the year 2033
> Child's Post Graduation: Rs 10.9 million* in the year 2035
> Child Marriage: Rs 20 million* in the year 2040
> Retirement Corpus: Rs 207.5 million* in the year 2043
*All figures at future value after taking into account inflation
PLAN ASSUMPTION
Inflation rate for all financial goals: 8% p.a.
Return on PPF/Gold: 8% p.a.
Return on MIP fund: 9% p.a.
Return on equity fund: 15% p.a.
MF SCHEMES RECOMMENDED: (DIRECT - GROWTH OPTION)
> HDFC Long Term MIP Fund
> ICICI Pru Bluechip Focused Fund
> Reliance Equity Opportunity Fund
> Birlasunlife Sunlife Dividend Yield Fund
The plan is presented on the basis of information and details provided by the couple. They are advised to review and rebalance their portfolio periodically, preferably every year. Take professional help in review process which will help them a lot.
