Ram Sharma is a 39-year-old manager in a Hyderabad-based apparel designing company based. He is unmarried and wants to remain a bachelor for the next five years. He is the only child of his parents, who are independent. His annual income is Rs 6.5 lakh and expenses are Rs 3.5 lakh, which includes a monthly rent of Rs 17,000.
His investments include life insurance and provident fund contributions of about Rs 70,000 per annum. SIPs constitute an expense of Rs 30,000 per annum. The net disposable income is Rs 2 lakh per annum. Home and car loans are not on the agenda.
His financial goals are — to get married in the next five years and to plan for post-retirement income. At the current costs, marriage would require Rs 5 lakh and retirement would need Rs 1.5 crore.
He has Rs 50,000 bank deposits and Rs 2.3 lakh in mutual funds. PF accumulations would amount to Rs 3 lakh, he has put Rs 1.5 lakh in LIC money back schemes and Rs 20,000 in infrastructure bonds. The total savings and investments is Rs 7.5 lakh.
Recommendations
Though Mr Sharma does not want to take any loan, it may be an ideal time for him to borrow to buy a home which in many ways is a productive asset. The money back plans are expensive and life assurance is for a small sum of about Rs 3.5lakh. This may become taxable in the event of the introduction of the DTC (Direct Tax Code).
He should buy a term insurance of Rs 50 lakh sum assured, with an annual premium payment of Rs 17,000.
* Increase SIP contributions in two diversified equity schemes and contribute Rs 10,000 per month to yield a corpus of about Rs 42.lakh over the next 15 years, assuming growth at 10 per cent per annum. This can help in meeting children’s education in the future and retirement needs.
* New pension scheme (NPS) contributions may be started with about Rs 30,000 per annum for the period until retirement under the equity option to yield about Rs 23.91.lakh assuming 8 per cent growth pa This can help in seeking 60 per cent as lump sum (Rs 14.3.lakh) withdrawals while the rest can be claimed as pension (Rs 76,500 per annum) for lifetime.
* A disability / job loss insurance could also be undertaken in view of growing uncertainty in the employment world.
* Going further, any increase in salary can be used to invest in equity and fixed deposits in a ratio of 40:60.
L.Ravindran is the founder and managing director of Wealthmax Enterprises Management Private Limited