Rahul Patwal, aged 33, is a young professional working with Tata Consultancy Services (TCS) as an Associate Consultant. He resides in Delhi with his wife and daughter Shagun, aged four years , in his own house. His wife is a home maker. The monthly household income of Patwals is `One Lakh and monthly house hold expenses are Rs50,000.
Patwal wants to create sufficient corpus for higher education and marriage of his daughter. Apart from this, he wants a regular income of Rs50,000 per month for his post retirement household expenses. He will retire at the age of 60 which is still 27 years from now. He would need Rs25,00,000 (Rs Twenty Five Lakh ) after 15 years for his daughter’s education and Rs50,000,00 (Rs Fifty Lakh) after 20 years for her marriage. The suggested financial roadmap for Patwal is as below-
It is necessary for every family to keep some emergency fund equivalent to minimum six months of house hold expenses. An unforeseen future and unavoidable circumstances rarely give any alarm and during the difficult time emergency fund gives vital support in many folds.
For Patwal, a reasonable Contingency Fund must be Rs3,00,000 (Rs Three Lakh) since his monthly expenses are Rs50,000. This amount should be kept invested in Ultra Short-duration debt funds. Easy availability of this fund , in case of need, is of the prime importance which one should always keep in mind.
Action: Maintain Contingency fund of Rs Three Lacs by investing in Ultra Short Duration Fund
Health insurance cover is a must for every family. There are three members in his family and their adequate health cover is provided by employer of Patwal as a part of his perks. Hence we are not suggesting a Health Insurance Policy for him and his family members.
Patwal is the only earning member of his family and his family is financially dependent on him. He is quite young and has family responsibilities. The best suggestion for Patwal is to opt for a term plan of life insurance for a sum of Rs60,00,000 (Rs Sixty Lakh ). Normally, a person should take Term Plan of Life Insurance equivalent to ten times of his annual expenses.
Action: Take Life insurance term plan for Rs Sixty Lacs from a reputed Life Insurance Company
House and car
Patwal is living in his own house and free from the liability of making a new house. He also has a car which is free from any installment payment liability. So we are not making any provision of funds for buying a house or car.
Rahul needs Rs25,00,000 after 15 years from now for his daughter’s education. This requirement of money is based on perception of present scenario. Considering the inflation effect and rising cost of education, the fund requirement after 15 years for higher education of his daughter has been estimated to be around Rs25,00,000 (Rs Twenty Five Lakh). To achieve this goal, he needs to invest Rs5000 per month for 15 years. The expected annual rate of return on this investment is assumed at the rate of 12 per cent.
Action: Start investing in monthly SIP of Rs 5,000 in a good Large Cap Fund
Marriage of his daughter Shagun
Marriage of his daughter may take place after 20 years from now. For this purpose Patwal needs Rs50,00,000 (Rs Fifty Lakh ). To attain this objective he needs to invest Rs5,000 on monthly basis for coming 20 years. The expected annual return for this investment is assumed at the rate of 12 per cent.
Action: Investing in monthly SIP of Rs 5,000 in a good Large and Mid Cap Fund
Patwal needs to plan a corpus to take care of his post retirement expenses. Presently monthly house hold expenses of Patwal are Rs50,000. His retirement will take place after 27 years from now. The value of this Rs50,000 will swell to around 2,00,000 after 27 years assuming inflation at the rate of 5 per cent. Rahul would need a sum of Rs24,00,000 annually during his post retirement period to maintain his existing standard of living. Presuming that after 27 years the prevailing annual interest on Fixed Deposit will be around Five Percent, he would need a corpus of around Rs5,00,00,000 (`Five Crores) at the time of his retirement.
He should start investing Rs21,000 per month for coming 27 years to create the desired corpus. The expected annual return for this investment is assumed at the rate of 12 per cent.
Action: Start investing in monthly SIP of Rs 21,000 in a good Multi Cap Fund
Always keep in mind that your financial plan should be in tune of your financial health. Emergency fund is a must for every family. It should be equal to minimum six times of your monthly expenses. Take adequate life insurance cover and pay their installments without any fail. Start monthly investment in SIP for the aforesaid financial goals .
All the best Rahul Patwal.
Note: For the sake of simplicity, Tax calculation has not been incorporated in this plan.Taxes will be payable as per the tax slab prevailing during particular financial year.
Financial Planning of Rahul Patwal is based on the “personal opinion and experience” of Manoj Shrivastava and that it should not be considered professional financial investment advice. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.
Manoj Shrivastava Chartered Accountant CEO, MF World