Financial Planning Process

Dear JK, In my view, if planned well, ELSS can be one of the best tax efficient and long-term wealth accumulation tool. May I know your details like;

• Age
• Dependents
• Information on Income & Expenses (in brief)
• Existing Investments (if any)
• Existing Insurance (if any)
• Financial Goals & Investment objectives

Dear Sreekanth, Thanks for your quick reply. I am attaching my details. I have been overly exposed to real estate and market exposure is very low. I want to correct this immediately. My details are as attached:

• Age - 31
• Dependents - wife and parents (no kids yet)
• Information on Income & Expenses (in brief)
  • Yearly income gross = 38 lakhs, net is about 29.8 lakhs right now
  • Expenses:
    • Monthly would be about 60,000; yearly can be taken as = 10,00,000 (inc capital exp / holidays etc)
• Existing Investments (if any)
  
  • MFs
    • Canara Robecco Tax Saver - 10,000 inv @ 21,573 Current NAV (5 years)
    • HDFC Tax Saver - 15,000 inv @ 15,187 Current NAV (4 years)
    • SBI Magnum Tax Gain Scheme - 10,000 inv @ 10,368 Current NAV (4 years)
  • Property
    • Land inv at 3,60,000 - current value around 8,00,000 (6 years)
    • Residential 1 - Flat booked at 32 lakhs (currently under construction - last 6 years, delayed possession) - current value ~ 40 lakhs. Was taken on loan - have just foreclosed last week
    • Residential 2 - Flat booked at 43 lakhs (possession in Dec 2016 - last 4 years) - current value around 54 lakhs - was taken on loan - have just foreclosed last week
    • Residential 3 - Total cost 68 lakhs. Currently paid 17 lakhs. Next schedule of payment to start by 2018 and to end in 2020.
  • Infrastructure Bonds
    • Bond 1 @ 8% - 20,000 (maturity - Jan 2021)
    • Bond 2 @ 9.09% - 20,000 (maturity - Feb 2022)
  • Equity
    • Negligible - portfolio of ~ 40,000
  • Liquid Cash
    • Around 6 lakhs 
• Existing Insurance (if any)
  • Life Insurance - ICICI Pru Elite II - yearly premium - 3,00,000
  • Health Insurance - Cigna TTK yearly premium - 12,000
• Financial Goals & Investment objectives
  • Goal 1 - Retirement fund - I want to retire by 2046 with a 10 crore cash corpus in addition to the property. I want to consolidate all pieces of property in future to 1.
  • Goal 2 - Child's education - I want to have around 1 crore by around 2035 for college and other education  

Dear JK, As you have already invested heavily in Real Estate, it takes time for you to build Corpus in other Asset Classes.  Let's try to plan the finances as below; Insurance :

• What is the sum assured of ICICI Policy?
• Are your parents covered with Health Insurance?
• Do you have Personal Accident plan?

Suggested Articles: http://www.relakhs.com/insurance-importance-life-health-accident-covers/ http://www.relakhs.com/financial-planning-pyramid-wealth-protection-accumulation-distribution/ Income & Expenses : As you are self-employed now, how confident are you to receive regular and the said income?  Do maintain sufficient Emergency Fund to meet any unforeseen contingencies.  You may save Rs 6 Lakh in Cash + FDs + Liquid Debt fund + Arbitrage Fund. Kindly read: http://www.relakhs.com/debt-funds-types-benefits-risk-vs-return/ http://www.relakhs.com/best-debt-mutual-funds-india-top-debt-funds/ http://www.relakhs.com/best-arbitrage-funds-returns/ Retirement Goal: Kindly use the calculator available in the below article to project your expected savings amount (avg). You may consider any of your properties towards your Retirement Goal. (As of now, your properties are not yielding any rental income. Are you going to let-out the one which is going to be possessed in Dec 2016?) Read: http://www.relakhs.com/retirement-planning-calculator-3-easy-steps/ Kid's Education Goal: As of now, you do not have kids, so you may consider investing for your Retirement goal as much as possible and as frequently as possible. Kindly go through below articles; http://www.relakhs.com/personal-financial-planning-articles-list/ http://www.relakhs.com/list-of-best-investment-options-schemes-in-india/    

Dear Sreekanth, my answers are below: Insurance :

• What is the sum assured of ICICI Policy? - premium *10 = 30,00,000
• Are your parents covered with Health Insurance? - They have full medical coverage free of cost because my father was a government official
• Do you have Personal Accident plan? - No

Suggested Articles:

If Life is unpredictable, INSURANCE can’t be optional

 

Financial Planning Pyramid : Wealth Protection, Accumulation & Distribution

Income & Expenses :
As you are self-employed now, how confident are you to receive regular and the said income? Fairly confident for the next 2 years atleast.
Do maintain sufficient Emergency Fund to meet any unforeseen contingencies. 
You may save Rs 6 Lakh in Cash + FDs + Liquid Debt fund + Arbitrage Fund. - Noted (Any particular recommended % split between the cash and the funds?)
Retirement Goal:
Kindly use the calculator available in the below article to project your expected savings amount (avg). You may consider any of your properties towards your Retirement Goal. (As of now, your properties are not yielding any rental income. Are you going to let-out the one which is going to be possessed in Dec 2016?) - Yes, but expected rental would be about 12 - 13,000 pm.

Kid’s Education Goal:
As of now, you do not have kids, so you may consider investing for your Retirement goal as much as possible and as frequently as possible - ok, noted

Hi, 1 - I believe that you are Under-Insured. Kindly consider buying a Term insurance plan with adequate life cover. Are you happy with the performance of your ICICI policy which is a ULIP?  2 - Consider buying a Personal Accident insurance cover. Read: http://www.relakhs.com/best-online-term-insurance-plans-india/ http://www.relakhs.com/best-personal-accident-insurance-policies-in-india-details-comparison/ 3 - Emergency fund split - It depends on your income flow from your business. If it is not regular, you may keep more in Cash + FD say (30 to 40%) and remaining in the Debt funds. Read: http://www.relakhs.com/mutual-funds-taxation-rules-capital-gains-tax-rates-on-mfs-fy-201516/ 4 - You may invest the rental income in equity oriented mutual funds for your retirement goal. Read: http://www.relakhs.com/top-15-best-mutual-funds-schemes-2016-sip-lumpsum/ http://www.relakhs.com/list-of-best-investment-options-schemes-in-india/ http://www.relakhs.com/best-mutual-fund-scheme-risk-ratios/ http://www.relakhs.com/mutual-fund-portfolio-overlap-comparison-tools/

Dear Sreekanth, Thanks 1 – I believe that you are Under-Insured. Kindly consider buying a Term insurance plan with adequate life cover. Are you happy with the performance of your ICICI policy which is a ULIP? - What should be the ideal cover and term for this - for a person of my profile? Also, as of now ICICI policy I am not very happy with but its just the 2nd year of a min 5 year term. My wife (who was working but has recently quit) also holds the same policy with a 2 lakh premium (20 lakh sum assured). She also does not have life insurance. What do you suggest, should i take one in her name as well?
2 – Consider buying a Personal Accident insurance cover - Again, what should be a good cover for me and my wife?

Top 7 Best Online Term Insurance Plans in India

 

Best Personal Accident Insurance Policies in India : Details & Comparison

3 – Emergency fund split – It depends on your income flow from your business. If it is not regular, you may keep more in Cash + FD say (30 to 40%) and remaining in the Debt funds. - ok, Noted

Mutual Funds Taxation Rules – Capital Gains Tax Rates on MFs

4 – You may invest the rental income in equity oriented mutual funds for your retirement goal - ok, noted

Hi, 1 - If your wife is not an earning member of your family, life cover may not be needed.       In your case, you may try to take life cover for atleast 10 to 15 times of your annual income.  If you are not happy, you may discontinue your ICICI ULIP policies and divert the premium to term insurance, PA cover and equity mutual funds. Kindly note that the ULIP surrender value will be give to you after 5 policy years only. The insurance company will give a nominal interest rate (say 4%) on the discontinued fund.  2 - PA cover can be equivalent to your life cover .