Mr Shafeeq Ali is a project manager in an IT company. The 30-year-old is married and the couple has a kid. His parents also stay with them.
Financial goals
Mr Shafeeq wants to purchase a car over the next two years. In the longer term, he wants to purchase an apartment as well. Meanwhile, he also needs to ensure that enough money is being set aside and invested for the education of their child and for his own retirement.
Where is he now?
Mr Shafeeq annual income is Rs 9.5 lakh per year, which translates to a monthly income of Rs 65,000 after deductions and taxes. His household expenses are Rs 25,000 per month and there are no outstanding loans — leaving a considerable scope for savings.
The total accumulation in his provident fund account is Rs 1.6 lakh. His family has a health cover up to the limit of Rs 4 lakh — provided by his employer.
Recommendations
Mr Shafeeq doesn’t have much by the way of savings right now, but the good thing is that he is young and he doesn’t have any outstanding loans. Moreover, the saving potential is high as his expenses are less than half of his income.
As a basic precaution, he should go for a life insurance policy — a pure term cover of Rs 50 lakh. Given his young age, it should cost him Rs 12,500 per year. In addition to this cover, he should also seek a health cover of `10 lakh for his entire family — a family floater policy with a critical illness rider, that would cost Rs 10,500. Payments made for both the policies will get a tax benefit.
For his short term goal of buying a car, he should start putting Rs 10,000 per month in a debt mutual fund. In about three years, he should have enough to purchase a car.
On the tax saving side, there are some more steps he needs to take. PPF is one — he should open an account for his child and deposit the maximum of Rs 70,000 per year. He can place an additional investment of Rs 20,000 per year in an infrastructure fund, again for tax purposes and another Rs
30,000 per year in the new pension scheme.
Any good asset mix should have an equity component, and Mr Shafeeq needs that as well. He should start an SIP of Rs 15,000 per month in one or more well diversified equity mutual fund. Apart from this, he can put in Rs 3,000 per month in a gold mutual fund.
Apart from being an investment, this may come in handy at the time of the child’s marriage. Starting four years down the line, Mr Shafeeq should use some of his salary increment to put money aside in a debt fund to collect the margin money for a house. In all, his goals are achievable if he increases his savings in the coming years.
(L. Ravindran, PhD, is a financial advisor and managing director of Wealthmax Enterprises Management Pvt Ltd.)