Babu Chettiar, who is 35 years old, is employed with a manufacturing company, while his 32-year old wife Sudha is employed with an IT company based in Chennai. They have two children aged 10 and 8 years. Both Mr Babu’s and Ms Sudha’s parents (in the age group between 65-70 years) live with them. The family headcount is thus eight persons.

They live in a large four bedroom house owned by Mr Babu’s father. They have two cars and have holdings in real estate and jewellery. Bank deposits of Mr Babu and his wife are around Rs 3 lakh. The aged parents get sufficient pension and have their own kitchen and take care of all their requirements independently. The medical needs are also assured through their erstwhile government employer.

This leaves us with only management of finances for Mr Babu and his immediate family. Their household expenses (driver’s salary, children’s schooling and other expenses, etc) amount to Rs 50,000 a month. They have a combined income of Rs 15 lakh per annum, post income-tax.
Their PF accumulation is Rs 12 lakh. Their bank balance is Rs 15 lakh, all in fixed deposit. They have an insurance policy of Rs 50 lakh. Mr Babu’s wife has jewellery worth Rs 30 lakh. The savings potential per year is Rs 6 lakh.

Financial goals

The goals to be achieved are medium-term and beyond. The educational expenses for the children till post-graduation shall require Rs 50 lakh, while marriage will take away another Rs 25 lakh. The maintenance of standard of living shall require accumulation of Rs 3 crore (assuming longevity as 85 years). The overall financial goals thus aggregate Rs 3.75 crore.

Where is he now?
Since there are no loans outstanding, the overall net worth is Rs 69 lakh. The liquidity in bank is sufficient and can help meet contingency requirements. Cash available shall help meet three years of living expenses.

Recommendations
The following is the suggested action plan to save and invest `6 lakh per year for the next 25 years (period until retirement) and assuming that the couple will continue to work till retirement:

Since the couple are in private sector and do not enjoy medical benefits as their parents, a family floater be taken to cover medical health and critical illness for self and the entire family for Rs 10 lakh (premium Rs 8,500 a year);

* Invest Rs 10,000 per month through an SIP into gold ETFs or mutual fund schemes. This will hedge against inflation and help you to purchase physical gold at later stage;

* Invest Rs 25,000 per month into two well performing diversified equity schemes. This will help in meeting educational needs of children;

* Foreclose your Rs 12 lakh fixed deposits. Of which, 50 per cent could be reinvested for 3-5 years at the higher rates prevailing now, while the balance 50 per cent could be invested into a fixed maturity plan for 1-3 years to gain on twin benefits of indexation and post tax efficiency;

* A sum of Rs 70,000 per annum could be invested in the names of the couple or their children, which will mature after 14 years to meet marriage expenses of children.

* A sum of Rs 5,000 per annum could be deposited in a recurring deposit for five years or more.

* Another Rs 50 lakh of term insurance could be contemplated by the couple (cost Rs 20,000 per annum)

* Mr Babu and his wife must also draw up a will in each other’s name to bequeath properties.

(L. Ravindran, PhD, is a financial adviser and MD of Wealthmax Enterprises Management Private Ltd.)