Ashley Prince is 46 years old, employed as the assistant manager, human resources, of an engineering company based in Chennai. He is married to a home maker and has two children — son aged 15 years and daughter aged 10 years. His 70-year-old mother also lives with them.
Financial goals
He wants to ensure a good education for both his children. While it would finally depend upon his children’s interests, Prince wants to ensure that he has enough at hand to be able to see them through business school for an MBA. The other goal, apart from education, is children’s marriage, which is some years off.
Apart from these, he has an outstanding home loan of Rs 25 lakh. In addition to these, he also needs to save for his retirement. The present value of all these works out to Rs 2.15 crore.
Where is he now?
Prince has an annual income of Rs 8 lakh. His monthly savings, post his household expenses, add up to Rs 15,000 a month.
His current investments include a property worth Rs 10 lakh — net of debt. He also has Rs 7 lakh invested in mutual funds and bank deposits. Except for one Ulip policy, he has steered clear of equity markets. The provident fund accumulation is Rs 5 lakh. He had also purchased some insurance schemes that will yield Rs 15 lakh on maturity. In all, his net worth is Rs 37 lakh. Clearly, there is a major financial gap.
Recommendations
The first observation is that the Prince is under-insured.
Prince needs to go for a critical illness insurance cover of Rs 15 lakh. In addition, he should also go for a pension plan of Rs 5 lakh and a term cover of Rs 25 lakh. The other observation is that there is very little investment in equities so far. If the Prince family wants to meet their financial goals, they will need the returns that only equity can provide. A diversified mutual fund with a long term track record can be chosen for the purpose.
PPF accounts can be started for the children with the parents as nominees.
Another investment avenue can be corporate fixed deposits for children’s education, as the expense is still some years in the future. On an overall basis, Prince needs to invest in equity and debt in the ratio of 40:60. However, in the intial years, it will be better for him to put more money in equities and gradually bring the ratio down.
We wish Prince a royal life full of cheer and success all the way.
(L. Ravindran, PhD, is a financial advisor and MD of Wealthmax Enterprises Management Private Ltd.)