The combined annual income of Sudhir Bajpai (40), who is employed in the financial services sector, and his wife Anjali amounts to Rs 6.5 lakh. Other family members include his elderly mother and two kids aged 7 and 5. The familys household expenses amount to Rs 25,000 a month, while Rs 3,158 is directed towards EMIs pertaining to a housing renovation loan. This apart, life insurance premiums for three policies, including a child plan, amount to around Rs 4,000 per month and the cost of the familys health cover is Rs 9,000. He has also made investments in mutual funds and public provident fund.

RECOMMENDATION

His current asset allocation is 87% in debt and 13% in equity, which could be improved in the immediate future to 60% in equity and 40% in debt. In terms of basic financial planning, the family is secure with a life as well as health insurance in place. We suggest creating a liquid pool worth Rs 150,000 (six months expenses).

CHILDRENS EDUCATION

Mr Bajpais plans for providing for childrens education in their 18th year are 11 (2021) and 13 (2023) years away. The SIPs of Rs 1,500 towards each child would be worth nearly Rs 3,58,290 and Rs 4,75,000 after 11 and 13 years, respectively. Along with the endowment benefits of Rs 225,000 and 400,000 in 2020 and 2023, each child would have approximately Rs 583,000 and 875,000, respectively, for their education. Any further needs could be met out of education loans, which could be availed of then.

RETIREMENT PLANNING

PPF and PF investments should be wholly utilised towards retirement, which is say 20 years away. Then, PPF would amount to Rs 35,84,000, while PF investment will yield Rs 30,00,000. The SIP of Rs 2,500 along with the balance of Rs 60,000 would amount to Rs 23,38,000 at that time. At 51, he could invest Rs 3,000 saved from the house renovation loan through SIPs till retirement, yielding around Rs 500,000. In all, the retirement corpus would be worth close to Rs 93 lakh, which would last them for 11 years post-retirement. Assuming a life expectancy of 90 years, they need to provide for an additional corpus of Rs 1.2 crore, which necessitates additional monthly investment of Rs 17,500 immediately (10% return pa assumed till retirement). Since this seems unattainable as of now, he could defer this for five years, leading to the requirement going up to Rs 31,000 pm till retirement.

FINANCIAL PLANNING TIP

The couple manages to save around Rs 7,500 per month. If planned judiciously, out of this, Rs 6,000 could be invested in diversified mutual fund SIPs, which would yield Rs 14,30,000, after 11 years or Rs 45,56,000 after 20 years. This amount could be prioritised between childrens education and retirement as the situation evolves.