Sathish GL (35) has humble origins. His father did not own a house, nor a vehicle, but he shielded his family from the monetary vagaries. They had
no idea about his income or investments. All they knew is that there was no shortage of funds for education. These days, it is wiser to make the family aware of certain financial details. Sathish GL is a post-graduate from IIT. His wife, Chethanamba KR, is also doing her doctorate in IIT, Chennai. They have a four-year-old daughter, Surabhi GS. All their goals are long term: They need Rs 10 lakh for their daughter’s education after 17 years and Rs 8 lakh for her marriage. They need a retirement corpus that can generate a monthly inflow of Rs 50,000 after 25 years. Lastly; they want to continue supporting Sathish G L's parents. Where are they today? Total yearly inflow of Sathish GL is Rs 12.64 lakh. Chethanamba KR gets a scholarship worth Rs 1.80 lakh per annum from the ministry of human resource development, so their total inflow is Rs 14.44 lakh. Against this, they spend Rs 12.03 lakh on household expenses, taxes, insurance premium, rent for accommodation within IIT campus, EMI on house, where they will eventually live and on car and contribution towards EPF/PPF. About 38% of their income pays for home and car loans. Statement of net worth: Total value of assets is Rs 110 lakh, of which Rs 73 lakh is for self consumption. This includes their future home. Outstanding liability on home and car is Rs 28.50 lakh. Other expenses, savings and insurance: Contingency fund: Monthly expenses are Rs 78,000, and they have Rs 4.10 lakh lying in cash -- about 5.25 months’ reserve . Total health cover from Sathish's employer for the entire family is Rs 2.50 lakh. Sathish’s life cover is Rs 22.18 lakh and Chethanamba’s is Rs 1 lakh. All are investment-oriented policies. Balance in savings bank is Rs 3.30 lakh, FD has Rs 50,000, cash at home Rs 30,000. Market value of direct equity is Rs 4.74 lakh and equity mutual fund is Rs 3.02 lakh. They have further invested Rs 1.70 lakh in EPF/PPF, Rs 11 lakh in post office saving schemes, bullion Rs 2.55 lakh, plot of land Rs 6 lakh and ULIP plans Rs 4 lakh Fiscal analysis: While the couple is earning very well they are not saving even 20% of their inflow, which is bad considering yearly income is more than Rs 10 lakh. Insurance premium consumes 14% of income but is generating mediocre returns. Their largest insurance policy is a ULIP-based child plan, causing the biggest dent in wealth creation. Health insurance cover for family is very low. Investment portfolio is well diversified across debt, equity, bullion and land, but it is not aligned to goals. Most debt instruments are generating post-tax returns lower than interest on loans. This is eroding wealth. By curtailing expenses slightly, enhancing savings, and realigning their investments , the family can achieve most of their goals comfortably. Way ahead: Keep aside Rs 2.35 lakh for contingencies. Of this, keep Rs 30,000 at home in cash and park the rest in a savings bank account linked to an FD. Excess funds should be used to pay off debt and purchase health cover. Total health cover for the couple should be Rs 5 lakh each and Rs 3 lakh for the daughter. Life cover required for Sathish GL is Rs 75 lakh--through term plans. Also, wherever possible, convert certain life insurance polices into 'fully paid-up .' Use surplus to pay back loans. Also, when certain debt investments mature, use them to pay off loans. Try to be debtfree in the next four years. Planning for financial goals: All goals are more than 15 years away. Therefore, create a single portfolio pool. Two-three years prior to reaching a goal, transfer funds required for that particular goal into a debt instrument/s. Asset allocation for the pool should be about 60% equity, 10% bullion and 30% real estate. Equity should be distributed equally in a large cap fund, broad-based index fund, diversified equity fund and international fund investing in emerging economies. Invest in gold funds and funds of other precious metals. Try to avoid buying a single piece of plot or flat etc. Instead, get schemes that invest in real estate—but watch out for the expenses charged
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