Prasad (42) works with Indian Railways as an engineer and his spouse Subhra (35) is a home maker. Prasad has all along been posted in project areas away from urban centres. They have two daughters Vaishna (11) and Vaidehi(5).They are staying in their official accommodation and have rented their owned flat. Besides the regular savings in EPF, PPF, NSC, KVP and Life Insurance policies, the surplus income has been invested in landed properties. They do not have exposures in equities and mutual funds. Their primary concern is education and marriage of both the daughters. They would like to go for vacations both in India and abroad. Prasad would like to take a plunge into business once the futures of both the daughters are taken care of. They also want a comfortable retired life.
The details of his financial position and the plan are as follows:
Annual Income and expenses: (in Rs)
- Salary and Rental Income : 10.05 Lakhs
- Yearly Expenses(Fixed and Variable) : 2.55 Lakhs
- Life and vehicle Insurance : 1.38 lakhs
- Housing loan repayment : 1.37 lakhs
- EPF & PPF : 0.54 Lakhs
- Tax : 0.62 lakhs
- Net annual Cash Flow : 3.59 Lakhs
- Monthly surplus : 29916/-
Investments (Current value in Rs)
- NSC and KVP : 2.19 lakhs
- EPF : 4.68 lakhs
- PPF : 1.30 lakhs
- Land and flat : 87 lakhs
- Insurance policies : 6.5 lakhs
- IDBI Flexi Bonds :0.60 lakhs
- Cash : 2.40 lakhs
Total 104.67 lakhs
- Home loan outstanding : ` 8.92 lakhs
1. Vaishna’s Graduation in 2017 – Cost: 8 Lakh
- Future Cost : 12.39 Lakh (Inflation 6%)
- Current Investments Allocated : 6.22 Lakh
2. Vaishna ’s Post Graduation in 2021 – Cost :6 lakhs
- Future Cost : 11.06 Lakhs (Inflation 6%)
- Current Investments Allocated : 3.56 Lakh
3. Vaidehi’s Graduation in 2024 – Cost : 8 Lakhs
- Future Cost : 18.65 Lakh (Inflation 6%)
- Suggest SIP in diversified equity MF : 5,000 pm
4. Vaibhavi ’s Post Graduation in 2028 – Cost :6 lakhs
- Future Cost : 16.63 Lakh (Inflation 6%)
- SIP in diversified equity MF : 2,500 pm
Marriage of Vaishna in 2025 –Cost: 10 lakhs
- Future cost : 22.60 lakhs
- Current investment allocated(Landed Property) : 5lakhs
- SIP in diversified equity MF/Gold ETF : 3,000 pm
Marriage of Vaidehi in 2031 – Cost: 10 lakhs
- Future cost : 32.07 lakhs
- Current investment allocated(landed Property) : 5 lakhs
- SIP in diversified equity MF/Gold ETF : 2,000
Retirement Planning (Retirement in 2029)
- Monthly Requirement : 51, 400 at retirement
- Retirement Corpus Required Rs. 1.53 crs (Inflation 6%)
Retirement benefits from EPF, Gratuity, Leave encashment and monthly pension can meet the target corpus with a shortfall of 16 lakhs which can be achieved by a monthly SIP of 2,000 in an Index fund.
The current asset allocation is heavily weighted in favour of investments in landed property (84%).The recommended exposures through SIP in equity and gold ETF will gradually shift the balance.
* Equity MF returns assumed at 12%
- At present Rs.2.40 Lakhs in Savings Banks of SBI and ICICI Bank.
- Recommendation – Invest Rs.1.4 lac in FD and the balance in MODs/Flexi deposits accounts.
Life Insurance, Accidental Insurance and TPD
- Insurance need – : Rs.94 Lakhs.
- Has Rs.17 Lakhs cover with annual premium of Rs. 1, 24,000/- with mostly endowment policies which yields between 5-6%.
- Recommendation – Rs. 77 Lakhs of term insurance with PA and TPD rider. Premium – Rs.30, 000; One Endowment policy for SA Rs.6, 93,000 and annual premium of Rs. 51,000/- can be made paid up. The savings thereon can be used to pay term insurance premium of Rs.30,000 and balance can be invested in MF SIP for 15 yrs which can yield Rs.8,76,000 (12% return) and this will almost compensate the maturity proceeds of the policy.
- Currently medical facilities available from the employer.
- Recommendation – A family floater policy of Rs.3 lakhs.
- The savings of Rs. 1, 00,000 per year can be invested in an income plan of Mutual fund and the proceeds of principal and dividend can be used for vacations in India and abroad in alternate 4 year periods.
- Risk of over exposure in landed properly: Prasad has taken over exposure in landed property and purchased plots which need to be mutated in his name. He needs to take preventive steps for encroachment. We recommend to sell two plots and invest the proceeds in a 3 bed room flat .The proceeds from the remaining landed property can be used for the children’s education if a need arises for their education abroad and the balance can be used as capital for his own business when he decides to take a plunge into it.