Prasad ’s Financial Plan

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:

Prasad ’s Financial Plan 

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                                 :     3.41 Lakhs

  • Monthly surplus                                         :    Rs 28416/-

 Investments (Current value in  Rs)

·         NSC and KVP                                        : 2.19 lakhs

·         EPF                                                     : 4.68 lakhs

·         PPF                                                     : 1.30 lakhs

·         Landed property                                   : 87 lakhs

·         Insurance policies                                  : 6.5 lakhs

·         IDBI Flexi Bonds                                    : 0.60 lakhs  

·         Cash                                                    : 2.40 lakhs

Total                                                           104.67 lakhs

Liabilities

·         Home loan outstanding                     : Rs. 8.92 lakhs

 

Financial Goals

Vaishna’s Graduation in 2017 –        Cost Rs. 8 Lakh

·         Future Cost                                      : Rs. 12.39 Lakh (Inflation 6%)

·         Current Investments Allocated            : Rs.  6.22 Lakh 

Vaishna ’s Post Graduation in 2021 – Cost  Rs. 6 lakhs

·         Future Cost Rs. 11.06 Lakhs (Inflation 6%)

·         Current Investments Allocated Rs. 3.56 Lakh

Vaidehi’s Graduation in 2024 – Cost Rs. 8 Lakhs

·      Future Cost Rs. 18.65 Lakh (Inflation 6%)

·      SIP in diversified equity Rs. 5,000 pm

Vaibhavi ’s Post Graduation in 2028 – Cost Rs. 6 lakhs

·         Future Cost Rs. 16.63 Lakh (Inflation 6%)

·         SIP in diversified equity Rs. 2,500 pm

Marriage of Vaishna in 2025 –Cost Rs. 10 lakhs

·         Future cost Rs.22.60 lakhs

·         Current investment allocated (Landed Property) Rs. 5lakhs

·         SIP in diversified equity/Gold ETF Rs. 3,000

 

Marriage of Vaidehi in 2031 – Cost Rs. 10 lakhs

·         Future cost Rs. 32.07 lakhs

·         Current investment allocated (landed Property) Rs. 5 lakhs

·         SIP in diversified equity/Gold ETF Rs. 2,000

 Retirement Planning (Retirement in 2029)

·         Monthly Requirement: Rs. 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  Rs. 2,000 in an Index fund.

Asset Allocation

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.

Recommendations

Emergency / Contingency Fund:

·         At present Rs. 2.40 Lakhs in Savings Banks of SBI and ICICI Bank.

·         Recommendation – Invest Rs. 1.4 lac in FD/FMP 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 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.

 

Health Insurance

·         Current medical facilities available from the employer.

·         Recommendation – A family floater policy of  Rs. 3 lakhs.

Vacation Planning

·         The savings of Rs. 1, 00,000 per year can be invested in an income plan 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 property: 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.

Always seek advice from a fee-only certified financial planner or SEBI registered investment adviser. They provide unbiased recommendations by keeping the clients interest uppermost in mind as per SEBI compliance guidelines. Also review your financial plan periodically for the status of asset allocation of portfolio. 

Last modified on Friday, 16 August 2013 04:12

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial PlannerCM from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

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