Pratik, 30, and his wife Doyel, 24, are both working in the IT field and live in Hyderabad. Pratik works as a consultant with Infosys Technologies. Doyel works with Keane Software as a software engineer. Currently they do not have any children. Their main financial goals include buying a house for investment, paying off their existing property payments. They also want to set aside funds for their parents’ medical requirements in the future. They intend to have a child in 2012 and want to start saving towards the kid’s education and marriage. Their investment so far includes a small one in a mutual fund. They have invested in multiple FDs. Their assets consist of two houses worth a total of Rs 24 lakh and Rs 8 lakh, on one of which they are paying EMIs and on the other one they need to make a further payment of Rs 12 lakh towards construction.

Together, Pratik and Doyel earn Rs 80,000 every month after taxes. They also earn extra income from work done abroad. This is earned in US dollars (USD) and provides an additional income over and above their regular salary income. Doyel expects to earn additional income of $1,500 from December 2009-December 2010 and Pratik expects to earn $1,800 from January 2010-June 2010. They have an average monthly spending of Rs 54,000, including EMIs.

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Cash flow situation

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Pratik and Doyel do not have any insurance policies in their names. However, they do have life cover provided by their employers—Rs 60 lakh for Pratik and Rs 30 lakh for Doyel.

They have a total net worth of Rs 20.36 lakh after outstanding liabilities of Rs 21 lakh. The financial assets form 25 per cent of their total net worth.

Diagnosis

Pratik and Doyel should start saving on a monthly basis into assets giving higher returns. In any case, most of their goals are long-term in nature, apart from funding for the property payments, which falls in 2012. Funds for bulk payments to be made in 2012 can be made partly from the additional income earned in USD in 2010 and partly from the FDs maturing in 2009-10.

Insurance

From an expense protection point of view, both Pratik and Doyel need risk cover, as they both are earning and contributing towards expenses. Pratik will also need to cover his liabilities. The cover provided by the employer is not normally taken into consideration, as it could vary when he changes jobs.

Pratik will need an expense protection cover of Rs 55 lakh and a liability protection cover of Rs 22 lakh. Doyel would need an expense protection cover of Rs 10 lakh. It would be recommended that they take separate term covers for expense protection in their respective names, and a separate cover to protect the liabilities.

Pratik

Term Cover—Rs 55 lakh for a term of 30 years. Annual premium will be about Rs 13,320. Term Cover—Rs 22 lakh for a term of 30 years. Annual premium will be about Rs 6,669.

Doyel

Term Cover—Rs 10 lakh for a term of 34 years (till retirement).Annual premium will be about Rs 3,044.

Pratik is also recommended to look at a Critical Illness Rider as he has mentioned a family history of heart disease. This rider provides an additional sum for protection against various critical illnesses.Pratik can look at a cover of Rs 5 lakh for 30 years, for which the annual premium will work out to about Rs 3,500.

Ideally, we would recommend that the goals for children’s requirements need to be protected. Ulip children plans could be an ideal option to protect the child’s goals, also ensuring that they save systematically for this. They could look at this when they have a kid.

While most of these goals are achievable assuming a rate of return of 10 per cent per annum (post-tax) on savings and investments, some amount of adjustment is still required in the goals.

The retirement goal will need to be postponed: to meet this goal in that particular year, Pratik and Doyel neither have enough monthly savings nor accumulated investments after meeting all other goals. Therefore, we recommend that they postpone Pratik’s retirement from 2037 to 2044. They will also need to scale down the amount set aside for their parents’ medical requirement in 2012 from Rs 5 lakh to Rs 3 lakh.

Retirement

While Pratik plans to retire in 2037, Doyel wants to retire later in 2043 and they have a requirement of Rs 1 lakh per month (Rs 5.1 lakh then), starting from 2037. Assuming a return of 7 per cent and inflation of 6 per cent over the post-retirement period, a corpus of Rs 14.61 crore would be required to meet their goal. If they postpone this goal to 2044, the corpus needed would be Rs 15.34 crore.

Current EPF balances of Rs 1.77 lakh and an EPF accumulation at Rs 4,282 per month for Pratik and Rs 1,500 per month for Doyel has been taken into account.

Rrecommendations

They currently have nearly 10 per cent invested in equity and the remaining in debt products. They need to increase their exposure into equity investments. They should keep in mind that accumulation in debt is already happening with monthly EPF accumulation.

Equity investments are recommended to be made via SIPs. An annual contribution of Rs 70,000 (maximum limit) is recommended to be made into Pratik’s PPF account.

Pratik and Doyel need to make provisions for their short-term requirements of Rs 22 lakh in 2011. For this, they need to ensure that the money earned in USD is invested into liquid or short-term funds which can be easily liquidated. After making property investments in 2011, further investments into property is not recommended, as real estate is a highly illiquid investment and may hamper the funding of their goals.

The planner is Managing Director, International Money Matters and can be reached at lovaii AT internationalmoneymatters DOT com