Mr Jaswant K. is a 33-year-old manager of a fashion design company based in Mumbai. He is a bachelor and wants to continue being one for the next five years. His parents are independent. He lives in a rented accommodation and pays `17,000 per month as rent. His income is `6.5 lakh and household
expenses are `3.5 lakh per year. Life insurance and provident fund contributions account for about `70,000 per annum. A few SIPs in tax savings plans takeaway about another `30,000 per annum. The net disposable income is about `2 lakh per annum. Jaswant is keen to lead a debt-free life. Home and car loans are not part of his agenda. He has just received a salary hike.
financial goals
He has only two goals: Getting married in five years and planning for a hassle-free retirement life. For marriage, he would need `5 lakh and he needs to have around `1.5 crore for his post-retirement life.
Where is he now
He has bank deposits of about `50,000. About `2.3 lakh is parked in mutual funds and `3 lakh in PF accounts. LIC contributions to money back schemes are `1.5 lakh (sum assured `3.5 lakh). He has also invested `20,000 in infrastructure bonds. He doesn’t own any land or property. Total savings and investments are `7.5 lakh.
Recommendations:
n The potential for investments has improved after his salary hike, which increased his disposable income by `2 lakh. Though Jaswant does not want to take a loan, it would be an ideal time for him to take a loan to buy a home, which in many ways is a productive asset.
n Money back plans are expensive. His life ass-urance is for a small sum. He is advised to buy a term cover for `50 lakh for a 20-year term (cost `17,000 pa);
n Increase SIP contributions in two diversified equity schemes and contribute `10,000 per month to yield a corpus of `42 lakh over the next 15 years, assuming a growth at 10 per cent per annum. This can help in meeting children’s education as well as retirement needs.
n New pension scheme contributions could be started with about `30,000 per annum for the period until retirement under the equity option to yield about `23.91 lakh, assuming eight per cent return per annum. This can help in seeking 60 per cent as lump sum (`14.3 lakh) withdrawals while the rest can be claimed as pension (`76,500 per annum) for lifetime.
n Disability and job loss in-surance need to be bought.
n Further increases in salary can be used to invest in equity and fixed deposits in a ratio of 40:60.
(L. Ravindran, PhD, is a financial adviser and MD of Wealthmax Enterprises Management
Pvt. Ltd.)