Lt. Commander Atul Jain has been with the Indian navy for the past eight years and is currently based in Visakhapatnam. The thirty-two-year old is married and the Jains already have a two-year- old son.
Financial goals
Atul’s parents are well settled and not financially dependent. The biggest family commitment is the education and marriage of his son. Apart from these, Atul is also planning to purchase a plot of land over the next two years — which he estimates will cost him Rs 8 lakh. He is planning to take an early retirement — in the next 12 years so that he is eligible for a short service pension.
Where is he now?
Atul’s net salary — which includes taxes and a substantial provident fund deduction of Rs 20,000 a month works out to Rs 29,000 a month.
Apart from his salary, he is also entitled to perquisites such as house rent allowance, leave travel allowance and medical — but these are based on actuals. Household expenses are Rs 10,000 per month. His total savings — including bank deposits, provident fund accumulations and investments in insurance, pension and mutual funds add up to Rs 9 lakh. An overwhelming proportion — almost 90 per cent — is in debt instruments.
Recommendations
Atul’s cash/liquid savings are enough to take care of expenses for the next 6-8 months. This is sufficient as the government of India takes care of his residence and other expenses.
Given his young age, Atul should start investing more money in equity instruments now. His monthly savings are close to Rs 19,000, of which he is already investing Rs 5,000 a month.
The remaining monthly surplus of Rs 14,000 can be invested in equity, mutual funds and gold ETFs through systematic investment plans.
The money from maturing National Savings Certificates can also be re-invested in equity mutual funds. Given his risk averse nature, Atul may find it better to take the mutual fund route rather than dabble in markets himself.
Given his current age and expected working life ahead, he needs to have an insurance cover. A pure term cover of Rs 50 lakh —that would cost Rs 12,000/annum, is desirable.
While the current household expenses are Rs 10,000 a month, they are likely to increase in the future — if Atul is to purchase a house. This also needs to be kept in mind.
Also, in 12 years time, his son would be fourteen and would be looking at college admissions in a short time. That would also be a major expense.
Atul may probably find it useful to either continue his government service for longer than 12 years.
Alternatively, he may want to seek employment with the private sector for a few years after he takes early retirement — at 44 years. No matter which option he chooses, he would be well advised to put more of his investments into stocks, because over longer term, equities deliver better returns.
(L. Ravindran, PhD, is a financial advisor and managing director of Wealthmax Enterprises Management Private Ltd.)