Financial Planning advice :: Business Line

  

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I am 38 years old and work for a private sector company. I stay with my parents. My wife is a home maker. I have a 5-year-old daughter and 4-year-old son.

For various insurance policies, I pay annual premiums of Rs 20,000 for a sum insured of Rs 3.3 lakh.

I have a ULIP which entails an annual premium outflow of Rs 22,000. The sum assured is Rs 1 lakh and enhanced sum insured is Rs 5 lakh.

Through group insurance, my family is covered for Rs 12 lakh.

Please go through my portfolio and suggest an action plan to reach all my goals. My monthly surplus is Rs 15,000. If necessary, I can save more by cutting my variable expenses.

- Bhavani Prasad

Insurance inculcates a long-term savings attitude, when compared to investing in other financial instruments. But at the same time those with self-discipline and in the 10 per cent and 20 per cent tax bracket need to look at other savings instruments such VPF,PPF and NSC to build a long-term debt portfolio.

They offer better returns than traditional endowment plans and money-back policies. Yield on your policies will not be more than 7 per cent.

You are treating insurance as a medium of investment and tax savings rather than for its intended purpose, which is protection.

Your investments in financial and other assets are pretty low. You need to look at wealth creation through equity and real estate.

Building retirement corpus is missing from your stated goals. With your limited surplus, it may be challenging to allocate funds for retirement. If you are reasonable in most of your goals, you could save for retirement.

Your daughter’s higher education cost will be Rs 45 lakh after 12 years, if the inflation rate is 7 per cent (same rate for all goals). The maturity proceeds of traditional insurance in 2016-17 and 2024 will be Rs 3.5 lakh. If you redeploy the same till 2025, the value of your investments will be Rs 8.4 lakh. To generate the balance, you ought to save monthly a sum of Rs 11,500 for the next 12 years and it should earn a return of 12 per cent (applied for all goals).

For your son’s education in 2026, you will need Rs 48 lakh. If you earmark the Jeevan Surabhi maturity proceeds, you need to save Rs 47 lakh. To reach the target you need to save monthly, a sum of Rs 12,260 for the next 13 years.

For your daughter’s marriage, present cost of Rs 10 lakh will be Rs 38.6 lakh after 20 years. Assuming your Birla Dream Plan Ulip delivers 12 per cent on your investment, at maturity the fund value will be Rs 12.25 lakh.

If you invest the maturity proceeds till 2033 at 12 per cent return, the fund value will be Rs 24.2 lakh.

To meet the shortfall, you need to save Rs 1,470 per month for the next 20 years.

For your current standard of living, at retirement you need a kitty of Rs 1.82 crore and it should earn one per cent over and above inflation to sustain till your life expectancy.

To protect all your goals, take a term insurance policy for Rs 80 lakh.