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Family finance: Prakashs need to speed up investment, revamp insurance portfolio to achieve goals

S Prakash is salaried and lives with his wife, a teacher, and 24-year-old son, in his parents’ house in Kolkata. The couple brings in a monthly income of Rs 1.9 lakh. Their portfolio is worth Rs 1.3 crore, inlcuding Rs 9.5 lakh in cash, debt in the form of EPF (Rs 30 lakh), PPF (Rs 25 lakh), post office scheme (Rs 20 lakh) and NPS (Rs 5 lakh), while equity includes stocks (Rs 4 lakh) and mutual funds (Rs 41.5 lakh).

Their goals include building an emergency corpus, taking a vacation, saving for their son’s wedding, and retirement.



Cash flow


Financial Planner Pankaaj Maalde suggests that the couple build a contingency corpus of Rs 2.9 lakh, equal to three months’ expenses, and a medical buffer of Rs 6.5 lakh for Prakash’s parents. For this, they can allocate their cash and invest it in a liquid or short-duration debt fund. They also want to take a vacation worth Rs 7 lakh in two years. For this, they can allocate the maturity value of their two traditional insurance plans and also start an SIP of Rs 15,000 in an arbitrage fund.

Next, the couple wants to save Rs 71 lakh for their son’s wedding in five years. Maalde suggests they allocate the PPF amount of Rs 25 lakh. They also need to start an SIP of Rs 45,000 in a balanced advantage fund for four years and review it after two years.

How to invest for goals

* Invest Rs 12,500 in the PPF for retirement goal.
Annual return assumed to be 12% for equity, 8% for debt funds. Inflation assumed to be 7%.

For retirement, the couple has estimated a need of Rs 4.6 crore in 12 years, and can assign their EPF, NPS, stocks and mutual funds. They will also have to start an SIP of Rs 30,000 in a diversified equity fund, besides continuing to invest Rs 12,500 in the PPF for the specified duration. Maalde also suggests that they use Rs 20 lakh of their postal scheme funds to repay the education loan, reducing the EMI later.

Insurance portfolio

Premiums are indicative and could vary for different insurers.

For life insurance, the couple has two traditional plans of Rs 1 lakh each. Maalde suggests they retain the two as a debt component of their portfolio. Prakash should, however, buy a Rs 1 crore term plan for himself, and Rs 50 lakh for his wife, for 12 years. These will cost the couple Rs 3,125 a month in premium.

For health insurance, Prakash has a Rs 7 lakh cover provided by his employer. He also has a Rs 3.5 lakh medical plan for himself. Maalde suggests he buy a Rs 10 lakh family floater plan for himself and his wife, which will cost Rs 1,500 in monthly premium. Besides this, he should buy a Rs 50 lakh accident disability plan for himself and Rs 25 lakh plan for his wife, and both these will cost Rs 1,000 a month.

Financial plan by Pankaaj Maalde Certified Financial Planner

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