Professor R.S. Sharma is a director at a well-established management institute based in Bengaluru. The 42-year-old is a bachelor. He has no dependent family members.
Financial goals
Prof. Sharma wants a hassle-free life and he wants to sustain his current standard of living. He is concerned about the second because of the eight per cent or so rate of inflation, and because his current position doesn’t entitle him to either pension or gratuity. He expects to work till the age of 65 years. In terms of investing, he is very risk averse. He also hopes to make significant contributions to various charitable institutions.
Where is he now?
Apart from his salary, Prof. Sharma also earns a substantial sum as an independent consultant.
In fact, his income from consulting is almost half of his salary. He has also made some significant investments in the stock market, and he earns a small dividend income. His annual income works out to over Rs 10 lakh per year, while expenses are Rs 25,000 per month — or Rs 3 lakh per annum. He expects his annual income to increase five per cent per annum, while his expenses are likely to increase faster. Also, Prof. Sharma owns the house that he stays in.
Recommendations
Prof. Sharma has a working career of over 20 years ahead of him. Deducting his expenses from his income will leave him with a substantial sum of money —close to Rs 1 crore — at the time of retirement. Given that he is a bachelor with very few commitments, he should be able to sail through easily. Given his risk averse nature, he should put money in debt rather than stocks. Monthly income plans would be a preferred route for him as they can offer a rate of return better than inflation.
One major gap in his plans is health cover — his present job doesn’t offer any health benefits. He should take a mediclaim policy for about Rs 5 lakh coupled with a critical illness cover of Rs 20 lakh.
He could spread out his charitable investments over a longer period. He wanted to donate half of his collected savings to charity. He could donate a quarter of total savings at the time of retirement. The remainder could be done via a Will.
(L. Ravindran, PhD, is a financial adviser and managing director of Wealthmax Enterprises Management Private Limited.)