Gaurav Mashruwala, TNN | Jan 10, 2015, 06.35AM IST | Times of India
Mayank Dave, 44, a doctorate in science, works in the private sector. He lives in Bharuch, Gujarat with his wife Jayshree (43) and two sons — Harsh (12) and Shlok (8).
What is the couple saving for?
They want to save Rs 18 lakh and Rs 22 lakh for Harsh and Shlok’s education, respectively — they would require these amounts after six and nine years, respectively. They aim to save a corpus of Rs 50 lakh for their sons’ marriages. For their own retirement, they wish to continue with the same lifestyle and want to create a corpus of Rs 1 crore. All the costs will be revised based on inflation.
Where are they today?
Cash flow: The total annual inflow from all sources is Rs 23.55 lakh, against an annual outflow of Rs 8.70 lakh. The outflow consists of routine household expenses, insurance premium, rent, EMI and tax.
Net worth: The total assets are around Rs.1.39 crore. This includes cash and near-cash assets of approximately Rs 1.91 lakh, invested assets worth Rs 1.04 crore; assets for self-consumption worth Rs 34 lakh and a home loan outstanding of approximately Rs 54 lakh.
Dave has three real estate assets, of which two are investment-oriented and one which will be used for personal consumption is under construction, and hence the family lives in a rented house.
Contingency fund: The balance in savings bank account is Rs 70,000, bank fixed deposits is of Rs 1.11 lakh approximately and Rs 10,000 in cash. This is equivalent to about 4.5 months’ reserve.
Health & life insurance: The family has a health floater policy of Rs 3.50 lakh. Dave has a life cover of Rs 1.27 crore. Out the total sum assured, Rs 27 lakh is in investment-oriented insurance policies and a Rs 1 crore pure term plan.
Savings & investment: The balance in savings bank account is Rs 70,000, Rs 1.11 lakh in bank FDs. Other invested assets include shares worth Rs 11 lakh, equity mutual funds worth Rs 1.5 lakh, bonds worth Rs 1.51 lakh and real estate from investment perspective wroth Rs 90 lakh.
There is a decent fund inflow. A savings rate of 66% is very good. Outstanding liability is 39% of the total assets. The family must enhance health insurance though Dave’s life cover is adequate. However, he should prune investment-oriented life insurance policies. Overall assets allocation is in favour of illiquid real estate. Going ahead, he should ensure to invest more in assets which can be easily liquidated.
The way ahead
Contingency fund: Maintain a contingency reserve of Rs 1.2 lakh out of which Rs 20,000 should be held as cash in hand and the balance in FD linked to a savings bank account. Additional contingency funds should be utlized to pay back loan.
Health & life cover: Family should have health cover of Rs 5 lakh each for the couple and Rs 3 lakh each for sons. Alternatively, the can buy family floater policy of Rs 15 lakh.
Planning for financial goals
Son’s education: Start a SIP of Rs 32,000 for Harsh’s education and Rs 27,000 for Shlok’s. This amount should be invested in a large-cap equity fund and increased by 10% every year.
Son’s marriage: Start two SIP of Rs 15,000 each in equity and gold funds. Alternatively, the can invest in a mutual fund scheme which has both equity and gold as underlying assets.
Retirement planning: Ear mark existing investment in direct equity, EPF and real estate for retirement.
The family has been saving and investing a very good amount. They have build substantial wealth. However, it is recommended they should align it to financial goals and ensure that when the need arises, money is available. For example, real estate is illiquid, immovable and indivisible assets class. Though it does generate great returns, it is not always available to meet our funds requirements, For example, The Daves cannot sell off half of an apartment/flat to fund son’s education.
While it is important to invest in asset classes which generate best possible returns, what is more important is to ensure that investments meet our fund requirement whenever the need arises. Never chase maximum returns, look for optimum returns with convenient liquidity.