Thursday, November 29, 2012

Financial Plan prepared by me for Economic Times

Minor correction in investments to help Bansodes in achieving their financial goals

Amit Kumar, ET Bureau Nov 12, 2012, 08.00AM IST
(The Bansodes need to increase…)
At first glance, there seems to be little that's wrong with the Bansodes' portfolio. The diversification in equity, debt and cash is near perfect, given their age, and they have an impressive savings rate. However, the family needs to finetune their investments and align them with their goals, while ensuring that it is backed by adequate protection. Barring one of goal, for which the couple will have to wait for some time to invest, the family is on course to achieving the rest with ease.
Ravindra Bansode, 41, works in the aviation industry and lives in Mumbai with his wife Sharmila, 39, his father Pandurang, 75, mother Kamal, 70, and daughters Ananya, 13, and Maahi, 8. Ravindra is the only earning member and brings in a monthly income of Rs 45,000. After accounting for their expenses, which include a home loan EMI of Rs 13,543, personal loan EMI of Rs 3,265 and an insurance premium of Rs 1,320 per month, they are left with a surplus of Rs 10,680 per month. The home loan was taken in 2005 and the current outstanding amount is Rs 10 lakh, while the personal loan is worth Rs 2 lakh and was taken earlier this year. This surplus will suffice for a majority of their goals, but the Bansodes must rearrange their insurance portfolio so that they have adequate protection.
To begin with, Shilpi Johri, CFP at Arthashastra Planning, suggests that the Bansodes build a contingency fund. Considering that Ravindra is the sole earning member, the family needs to secure themselves against temporary loss of income and should keep aside a contingency corpus that is worth three months of expenses and a year's insurance premium. They need to save about Rs 1.2 lakh, which can be arranged by allocating the existing fixed deposit and cash to this goal, and directing the surplus amount after investing for other goals.

The next most important task for the Bansodes is to buy insurance. Currently, Ravindra has only two covers, one of which is an endowment plan that gives a protection of Rs 1 lakh for an annual premium of Rs 5,220. The other is a term plan from LIC for Rs 25 lakh, which costs them Rs 10,625 a year. These are expensive policies and strain the tight budget of the Bansodes, without providing adequate cover. In such a situation, any mishap can seriously endanger their finances. Accordingly, Johri advises them to increase the insurance coverage to at least Rs 1 crore. They should surrender the existing plans and divert the premium saved, Rs 1,321 per month, towards this goal. The cover will cost them about Rs 1,500 per month.

Their health insurance portfolio is in better shape, not because they have a plan but because Ravindra works for a PSU and his entire family is covered against any medical emergency. As such, there is no need for him to buy a separate cover. Also, the family need not worry about a health cover after retirement as they will be covered under the Central Government Health Scheme for the rest of their lives.
The Bansodes have simple goals for the future, which include saving for their daughters' education and marriages, and their own retirement. To begin with, the Bansodes want to save Rs 8 lakh and Rs 10 lakh for the education of Ananya and Maahi after 9 and 14 years, respectively. For Ananya, they can use their existing direct equity portfolio of Rs 1.58 lakh, along with the equity fund portfolio of Rs 26,000, which will suffice for about half the goal. The Bansodes have shown a lot of trust in direct equity and have a portfolio of 20 stocks. Johri thinks the portfolio is too big for Bansodes to manage and, instead, they should focus on investing mainly in equity MFs.

For the rest, they need to start investing Rs 1,808 per month through equity SIPs. For their younger daughter's education, they must surrender the child insurance plans that the couple had bought earlier. This will give them about Rs 35,000. Such plans are an expensive option to invest for a child's future and the couple will save more by investing through equity SIPs, says Johri. The equity MFs will generate about 15% of the desired corpus, while for the rest, the couple will need to invest Rs 2,276 per month.
The next goal is to save Rs 15 lakh after 14 years for their elder daughter's marriage. For this, they can use their existing PPF balance, which will give them Rs 2.5 lakh. For the remaining amount, they can invest Rs 4,591 per month in equity funds. To save Rs 22 lakh for Maahi's marriage after 17 years, however, they will have to wait for some time as the existing surplus won't be enough. After four years, when the personal loan has been repaid, they can invest Rs 5,911 per month to compensate for the lost time.

For their retirement, the couple needs a corpus of Rs 1.1 crore in another 20 years. For this, their EPF balance will provide about 95% of the corpus, while for the balance they need to invest Rs 421 in SIPs. The couple is advised to direct future bonuses, which they currently use to pay the premium for child plans, to increasing the contingency fund.
(Financial plan by Shilpi Johri,CFP, Arthashastra Planning)


  1. Many congratulations and keep it up.

  2. Excellent Shilpi. Keep it up

  3. Gud show Shilpi. Keep it up.
    I have a few suggestions which can make it more easy for a comman man to understand your suggestions in a simple way . And once he understands , he would go full throttle to fulfill those requirements and achieve his goals.
    I would be happy if we could meet but somwhere in January 13.
    All the Best
    God BLess U

  4. Thank you Anil! I would be interested in listening to your suggestions.
    During a Comprehensive Financial PLanning Engagement, a lot of discussion happens with the client and its family. They are made comfortable about the suggestions and the reasons behind those suggestions.
    The Financial Plan so prepared is kept Simple, Uncluttered, Easy to understand and Objective.
    The above plan is in standard format used by Economic Times.

    I would be glad to meet you but right now I am in United States. We can surely meet once I am back to India.


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