CASE STUDY

Every Monday, Business Standard analyses one familys finances and suggests a suitable way forward

THE GUPTAS
Prashant (36), Rohan (10), Sohan (7)
RESIDE IN NET ANNUAL INCOME RATING

Bangalore

~16.80 lakh

9/10

>FAMILY PROFILE
Prashant works as a head-sales in an IT firm and lives with his two sons in a self-owned apartment. Six months earlier, he lost his wife and employs a full-time maid to take care of his children
Basic expenses (~) Per month Annual

Household Children's education Home loan EMI Insurance premium

40,000 12,000 38,689 2,750

4,80,000 1,44,000 4,64,268 33,000

Total

93,439

11,21,268

Net monthly surplus: ~46,561 Prashant has been a prudent investor since the beginning of his career (15 years ago). He has created a good portfolio, with concentration on property and small allocation to debt and equity. He now desires to plan for his sons' post-graduation and paying off his home loan. He also wants to plan for his retirement at 55 years of age

>GOALS ROHAN'S MASTERS

(2024, inflation 10%) Current value: ~10 lakh Future value: ~28.53 lakh

SOHAN'S MASTERS
(2027, inflation 10%) Current value: ~10 lakh Future value: ~38 lakh

HOME LOAN REPAYMENT

(2019, home loan interest rate = 10.50%) Current outstanding loan dues: ~34 lakh

RETIREMENT PLANNING
(2030, inflation 7%, life expectancy 85 years) Future annual Current annual expenses: retirement expenses*: Corpus required:

~4.94 lakh
*Considering household expenses

~15.60 lakh
~

~3.62 crore
~

Assets

Liabilities

Savings account 1,50,000 Fixed deposit 2,50,000 EPF 6,50,000 Equity mutual funds 2,25,000 Self-occupied property 93,00,000 Invested property 50,00,000 1,55,75,000 Net worth 1,21,75,000

Home loan

34,00,000

34,00,000

>PRESENT STATUS
EMERGENCY FUND: Sufficient funds in savings account and fixed deposit account to take care of any near-term emergency LIFE INSURANCE: Prashant has a total insurance cover of ~51 lakh, which is inadequate HEALTH INSURANCE: Family is covered by employer-provided health cover of ~5 lakh and Prashant owns an additional family floater policy of ~3 lakh. Health cover is at present adequate INVESTMENTS: Single biggest investment is in second property, which is more than 80% of the total portfolio. Need to invest more in equity and debt LIABILITIES: At present, paying ~38,689 for a ~35 lakh home loan, taken in 2011 for 15 years to fund the purchase of his second property

>RECOMMENDATIONS
EMERGENCY FUND: Provision of up to 6 months expenses suggested to be maintained in savings account and fixed deposits, which is already there LIFE INSURANCE: Prashant needs an additional insurance cover of ~25 lakh. A suitable term plan for 20 years needs to be purchased, which will cost ~6,000 HEALTH INSURANCE: Need to increase family health cover to ~10 lakh which will cost an additional premium of ~12,000 ACCIDENT INSURANCE: A personal accident policy of ~1 crore with ~15 lakh TTD benefit is recommended for Prashant, which will cost ~12,000

>PLANNING
ROHAN'S POST GRADUATION (2024): Prashant needs to allocate ~10,500 in diversified equity large-cap mutual funds for this goal Rate of return assumed: 12% in equity funds SOHAN'S POST GRADUATION (2027): Prashant needs to allocate ~9,000 in diversified equity large-cap mutual funds for this goal Rate of return assumed: 12% in equity funds HOME LOAN REPAYMENT (2019): Reduce the loan term to 7 years, which will increase the EMI to ~57,326 (increase of ~18,600). This will help in clearing the loan by 2019 Rate of return assumed: 10.5% RETIREMENT PLANNING (2030): Prashants EPF corpus will be worth ~1.31 crore when he turns 55, if he continues to work, while his 2nd property will be worth ~2.52 crore at that time. This will easily take care of his retirement needs till the age of 85 years Rate of return assumed: 8% in EPF & 10% in property
Plan by: Steven Fernandes, Certified Financial Planner