* Name: Charan
* Job: Private employee
* Age: 40 years
* Dependants: 1
* Income: `6 lakh/year
Name changed to protect identity
Mr Charan, 35 is employed with a multinational automobile design engineering company in Chennai. He is married to a home-maker. He has a daughter aged six years. Charan and his family stay in a joint family with his brother’s family and his parents. Charan stays in a three-storeyed joint residential property — each of the floors earmarked to one family is valued at Rs 1 crore. The monthly expenses are shared by the three men. The monthly net income after tax is Rs 1 lakh, while the expenses turn out to be Rs 60,000. The likely saving per year is Rs 4.8 lakh. The joint family has two vehicles and possesses all the luxury electronic gadgets and accessories.
Financial goals (at current costs)
He has only two long financial goals: Education and marriage of his child and maintenance of his standard of living post-retirement. For the first goal, he would require Rs 60 lakh and the second would need Rs 1.5 crore, with an assumed longevity of 20 more years.
Where is he now
The current savings of Charan is primarily in bank deposits of Rs 3 lakh. Much of the savings in the past has been used for buying physical gold worth Rs 10 lakh. There are no outstanding loans. He has invested in a few tax saving schemes, which totals around Rs 1 lakh.
Mr Charan has not taken any life insurance policy on his individual basis as he has been provided a Rs 30-lakh term policy by the employer. Summing up all investments, his total net worth is Rs 1.14 crore. The contingency funds are sufficient to meet any urgent necessities especially in view of the joint family system.
RECOMMENDATIONS :
Since Mr Charan’s retirement is 25 years away, we suggest an immediate plan for investing Rs 4.8 lakh savings a year; this needs a review every three years.
* The current bank deposit can be kept as is, but for a longer tenure, so as to maximise the returns; In the event of a necessity, unlocking is possible.
* He needs to buy a term assurance of Rs 50 lakh as the life cover provided by the company is available only as long as the person remains in employment. This policy will cost about Rs 11,500 a year and can be taken for the longest period of 30 years.
* The jointly-owned residential property requires protection against fire and other allied perils.
* Invest Rs 25,000 a month in two or three systematic investment plans in diversified equity scheme for the next 10 years. Similarly, the investment into the diversified equity fund at eight per cent rate of growth can easily build a corpus of Rs 40 lakh, which can be used for child’s educational and marriage.
* Invest Rs 1 lakh a year in a PPF account to fund your retirement. In 20 years, the total fund created will be about Rs 30 lakh assuming 8.6 per cent interest.
* A pension plan contribution through an insurance company can be pursued with minimal yearly contribution of Rs 50,000 funded on an equated monthly basis, which will help in creating a corpus to get annuities for life and post-retirement benefits.
* He shouldn’t forget to create a will in favour of his wife.