CASE STUDY
Business Standard analysed one family’s finances and
suggests a suitable way forward
PRASADS
Hrishita Prasad (32),
Mr Prasad (65), Kaveramma (59)
|
RESIDE IN
|
NET ANNUAL INCOME
|
RATING
|
|
Bangalore
|
Rs.5.40 lakh
|
8/10
|
FAMILY PROFILE
Hrishita works as a professor in a management college in
Bangalore and lives with her parents, in her father's house. Having seen
marital discord in her two elder sisters’families, she has decided not to marry
for now. Her parents are not dependent on her, as her father gets a decent
pension by virtue of having retired from the Air Force
|
Basic expenses (Rs.)
|
Per month
|
Annual
|
|
Household
|
15,000
|
1,80,000
|
|
Insurance premium
|
3,750
|
45,000
|
|
Total
|
18,750
|
2,25,000
|
Net
monthly surplus: Rs.26,250
Under the guidance of her father, Hrishita has been saving
most of her income diligently for several years and has accumulated a decent
corpus. She now wants to buy a house of her own, which can be used as her
residence in later years. She also wants to buy a car and plan for her
retirement at 60.
GOALS
|
BUYING A FLAT
|
BUYING A CAR
|
|
(2015) (Inflation 9%)
|
(2016, Inflation 7%)
|
|
Current value:Rs.30 lakh
|
Current value:Rs.5 lakh
|
|
Future value:Rs.35.65
lakh
|
Future value:Rs.5.75 lakh
|
RETIREMENT PLANNING
(2041,
inflation 7%, Life expectancy - 85 years)
|
Current annual retirement expenses:
|
Future annual expenses:
|
Corpus required:
|
|
Rs.1.80 lakh
|
Rs.11.96 lakh
|
Rs.2.42 crore
|
|
Assets
|
RS
|
Liabilities
|
RS
|
|
Savings account
|
58,000
|
Nil
|
0
|
|
Fixed deposits
|
4,10,000
|
|
|
|
EPF
|
2,17,000
|
|
|
|
PPF
|
1,75,000
|
|
|
|
Equity mutual funds
|
1,50,000
|
|
|
|
|
10,10,000
|
|
0
|
|
Net worth
|
10,10,000
|
|
|
PRESENT STATUS
EMERGENCY FUND:
Adequate funds have been maintained in savings account and fixed deposits
LIFE INSURANCE:
Hrishita is covered for a sum assured of Rs.5 lakh, adequate as of now, as her
parents are independent
HEALTH INSURANCE:
She has an individual medical policy of Rs.3 lakh, while her parents are
covered for lifetime treatment in government hospitals. Health cover is adequate
at present
INVESTMENTS: Bulk
of the investments have been done in debt instruments, with a small allocation
to equity
LIABILITIES: No
liabilities at present
RECOMMENDATIONS
EMERGENCY FUND:She
is already maintaining an adequate amount of funds in savings accounts to cover
three months of her expenditure.
ACCIDENT INSURANCE:She
should take a comprehensive personal accident cover of Rs.25 lakh, with a total
temporary disability option of Rs.5 lakh. It will cost her Rs. 3,000 p.a
LIFE INSURANCE:No
additional cover suggested at present
HEALTH INSURANCE:Hrishita
should increase her mediclaim cover to Rs.5 lakh, which will cost her an
additional premium of Rs.2,000 p.a
PLANNING
BUYING A FLAT (2015):
The present FDs will fetch Rs.4.8 lakh after two years, while she needs to also
start a recurring deposit of Rs.23,000 p.m, which will give her Rs.6 lakh. She
will need to take a loan of around Rs.25 lakh, for which her EMI will be Rs.26,865.
Considering her expectation of 10% increase in her annual income, this should
be possible
Rate ofreturn
expected: 8% post tax in FDs & RDs, 10% interest on home loan
BUYING A CAR (2016):
Considering this goal is immediately after the house purchase, which will
result in her finances being stretched, Hrishita should postpone this goal for
another two years and initially settle for a second-hand car
RETIREMENT PLANNING
(2041):Hrishita's EPF and PPF should fetch her Rs.47 lakh and Rs.39 lakh,
respectively, considering she continues in service and invests Rs.25,000 every
year in PPF. Her existing equity funds will be worth Rs.38 lakh. For the
shortfall, she needs to start investing Rs.5,500 in large-cap equity funds. At
present, this is not possible due to allocation of monies to other goals. She
will then need to start allocating Rs.6,500 a month after two years for this
goal.
Rate ofreturn
assumed: 8% in EPF & PPF, 12% in equity mutual funds
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