CASE STUDY

Every Monday, Business Standard analyses one familys finances and suggests a suitable way forward

SINGHS
Birendra (34), Payal (33), Ayush (5), Father (62)
RESIDE IN NET ANNUAL INCOME RATING

Mumbai

~15.36 lakh

5/10

>FAMILY PROFILE
Birendra works as regional sales manager with a general insurance firm, while his wife works as a teacher in a private school. They live in Mumbai with their son and Birendra's father. Monthly income: ~1,28,000
Basic expenses (~) Per month Annual

Household Children's education Home loan Insurance premium

32,000 5,000 48,357 8,583

3,84,000 60,000 5,80,287 1,03,000

Total
Net monthly surplus: ~34,059

93,941

11,27,287

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 is their self-occupied property in Mumbai, for which Birendra's father contributed some amount from his retirement savings. Birendra's father is a retired government officer and gets a good amount of pension; he is also covered under a government medical scheme for life. Birendra wants to make a plan for paying off his huge home loan debt and to save money for his son's educational requirement. Retirement is his last priority.

>GOALS
PREPAYMENT OF HOME LOAN (2020, home loan interest 10%)
Current dues: ~40 lakh

SON'S GRAD & POST-GRAD

(2026, Inflation 10%) Current value: ~15 lakh Future value: ~51.8 lakh

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

RETIREMENT PLANNING
(2037, inflation 7%, Life expectancy - 85 years) Future annual Corpus Current annual expenses: required: retirement expenses:

~3.96 lakh
Assets

~10.92 lakh
~

~4.17 crore
~

Liabilities

Savings account 95,000 Fixed deposits 3,75,000 EPF 5,15,000 PPF 2,50,000 Equity mutual funds 4,15,000 Self-occupied property 1,15,00,000 1,31,50,000 Networth 91,50,000

Home loan

40,00,000

40,00,000

>PRESENT STATUS
EMERGENCY FUND: Contingency fund provided for in the form of savings account and fixed deposits LIFE INSURANCE: Birendra has a total insurance cover of ~80 lakh, while Payal is covered for ~5 lakh. Both are underinsured HEALTH INSURANCE: Family is covered through employer family floater 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 portfolio LIABILITIES: Presently servicing a home loan of ~45 lakh, with 13 years of balance payment period

>RECOMMENDATIONS
EMERGENCY FUND: Earmark ~2 lakh from the existing fixed deposits for contingency requirements LIFE INSURANCE: Birendra needs an insurance cover of ~1.5 crore, while Payal needs a cover of ~25 lakh. The term can be 20 years and the total yearly premium will be ~33,000 HEALTH INSURANCE: Birendra should take a top-up policy of ~10 lakh, with ~3 lakh as deductible for the family. The annual premium will be ~6,500

>PLANNING
PREPAYMENT OF HOME LOAN (2020): Birendra needs to start SIPs of ~21,000 in the ratio of 60% debt and 40% equity for a tenure of 7 years for this goal Home loan interest: 10.5% post tax SON'S GRADUATION AND POST-GRADUATION (2026): Need to start SIPs of ~15,000 in balanced mutual funds for this goal Rate ofreturn expected: 11% SON'S MARRIAGE (2034): Need to invest ~5,000 a month in diversified large-cap fund for this goal. At present, this is not possible due to allocation of surpluses for other goals. RETIREMENT PLANNING (2029): The EPF and PPF corpus at retirement will be around ~1.18 crore and ~69 lakh, respectively, assuming investment 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 to be invested in a 70% equity and 30% debt mutual fund portfolio. At present, this allocation is not possible. Any salary increases can be used for this goal. Also, once the home loan prepayment is done, the resulting EMI savings can also be invested for this goal. Rate ofreturn assumed: 8% in EPF & PPF, 11% on mutual funds portfolio
Plan by Steven Fernandes, certified financial planner