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CASE STUDY

Business Standard analyses


one family’s finances and
suggests a way forward

THE GUPTAS
Pankaj (32), Shalini (29), Kripa (2)
RESIDE IN NET ANNUAL INCOME RATING
Navi Mumbai ~10.92 lakh 5/10
>STATUS & GOALS
Pankaj and Shalini work in different call centres in
Mumbai. They have a two-year-old daughter, looked after
by a full-time maid. Their primary goal is to buy a house
and plan for their daughter’s education and marriage
Basic expenses (~) Per month (~) Annual (~)
Household and lifestyle 41,000 4,92,000
Rent 14,000 1,68,000
Insurance premium 10,833 1,30,000
Vacation 5,000 60,000
Total 70,833 8,50,000
Monthly income: ~91, 000 Net monthly surplus: ~20, 167

>GOALS

BUYING A FLAT DAUGHTER’S COLLEGE &


(2016 ) POSTGRADUATION
(2032 - 2036) (Annual inflation
9 per cent)
Current Value: Current Value: Future value:
~50 lakh ~35 lakh ~1.72 crore

RETIREMENT (2044)
(Annual inflation seven per cent, annual rate of return on
corpus nine per cent) (Life expectancy – 85 years)

Current annual Future annual Corpus


expenses: expenses: required:
~ 5.52 lakh ~36.70 lakh ~7.41 crore

Assets ~ Liabilities ~
Savings account 59,000
Fixed deposit 2,75,000
EPF 3,65,000
Insurance cash value 4,38,000
Equity mutual funds 4,27,000
1,56,4000 0
Net worth 1,56,4000

>FINDINGS
EMERGENCY FUND: Funds maintained in fixed deposits for
emergency purpose equivalent to four months of expenses
LIFE INSURANCE: Pankaj is covered for ~11 lakh, while
Shalini is covered for ~9 lakh through unit-linked
insurance policies (Ulips)
HEALTH INSURANCE: Both their employers provide a family
floater mediclaim cover of ~3 lakh. They don’t have a
separate cover
INVESTMENTS: Investments are spread across mutual funds,
Ulips and fixed deposits. The equity allocation is 58 per cent,
including Ulips
LIABILITIES: They don’t have any liabilities

>RECOMMENDATIONS

EMERGENCY FUND: The couple needs to maintain ~1 lakh in


joint savings bank account and can additionally maintain
~1.10 lakh in liquid funds
ACCIDENT INSURANCE: The couple needs to take a ~25-lakh
personal accident plan, with a temporary total disability of
~5 lakh for each. The premium for this will be ~8,000
approximately
LIFE INSURANCE: Pankaj needs to take a life cover of ~1.5
crore, while Shalini should take a cover of ~75 lakh. The term
should be 30 years and total premium for online term plan
will be ~30,000
HEALTH INSURANCE: They need to buy a separate family
floater health insurance policy of ~3 lakh. Premium for this
will be approximately ~7,000

>PLANNING FOR GOALS

BUYING A FLAT (2016): Considering the present surplus and


possible rent saving, the couple can go for a maximum loan
of ~35 lakh, which means they need to arrange the
remaining ~15 lakh, not possible at present. They need to
invest the surplus in recurring deposits for two years, along
with investment of any variable pay into liquid funds to
create a corpus for down-payment
Annual rate of return assumed: Six per cent post tax on RD
and liquid funds
Daughter’s college & postgraduation (2032 - 2036) : The
couple’s three Ulip policies will help fund the first three years
of their daughter’s education. They need to invest ~12,500 per
month in large-cap funds for 16 years to fund her post-
graduation goal. If they invest the surplus for the house, the
investments required for this goal will increase with each year
of delay
Annual rate of return assumed: 12 per cent on the large-cap
funds portfolio
Retirement (2044) : The couple’s EPF will be worth ~1.92 crore
in the year 2044. Since they will use the insurance maturities
for daughter’s education and mutual fund investments for
paying the down-payment for a flat, the monthly SIP amount
(in 70 per cent multi-cap funds and 30 per cent debt) required
to bridge the retirement corpus is ~20,000. Due to priority of
buying a flat, this investment is currently not possible
Annual rate of return assumed: 8 per cent on EPF, 12 per cent
on the mutual funds portfolio for the period considered

Plan by Steven Fernandes, certified financial planner, chief planner,


Proficient Financial Planners