Invest in equities for long-term wealth

Jitendra Nalawade (32) lives with his wife Reshma (29) and son Sarvadnya (4) in Noida. Both Jitendra and Reshma are post-graduates and work in the private sector.

What are they saving for?

The couple wishes to buy an additional house worth Rs 35 lakh after two years. They would also need Rs 25 lakh after 13 years for their son's education and an additional Rs 25 lakh for his marriage. They would also want to provide Rs 10 lakh to support Jitendra's parents who stay in Pune. Post retirement, the family would require a corpus that would generate Rs 36 lakh annually. These costs will be revised on the basis of inflation.

Where are they today?

Cash flow: The couple's annual gross inflow from all sources is Rs 17.94 lakh, against a total outflow of Rs 8.55 lakh. The outflow includes routine expenses, insurance premium, rental expenses for their current house in Noida and EMIs for a house in Pune. About 21% of the inflow is consumed by EMIs.

Net worth: The couple's total assets are worth Rs 77.50 lakh. These include personal assets worth Rs 70 lakh, which comprise house and jewellery. There is an outstanding liability of Rs 13.20 lakh taken as a loan. The net worth comes to Rs 64.30 lakh.

Contingency fund: Against the mandatory monthly expenses of Rs 57,000, the couple has Rs 50,000 in a liquid fund. This is less than a month's reserve.

Health & life insurance: Jitendra has a Rs 1.25 crore life insurance policy by way of a term plan. He has a health insurance of Rs 2.50 lakh provided by his employer.

Savings & investments: In addition to the liquid fund, the couple's EPF is worth Rs 7 lakh. There is no other investment.

Fiscal analysis

The couple has a decent fund inflow. Their contingency fund is insufficient. Their savings rate is very good. However, their health insurance is insufficient and needs enhancement. Jitendra's life cover by way of a term plan is good but, given his major family responsibilities, it needs to be enhanced. For long-term wealth creation, the couple needs to start investing in equity-based investments. Currently, their overall portfolio is illiquid.

The way ahead

Contingency fund: The couple must maintain a contingency reserve of Rs 1.70 lakh, out of which Rs 15,000 can be held as cash in hand and the balance in an FD linked to savings bank account.

Health & life cover: They couple should increase health cover to Rs 5 lakh for each member of the family and also top this up with an additional Rs 20-lakh floater policy. Jitendra has a life cover by way of a term plan but, considering he has family responsibilities, he should enhance this by Rs 1.14 crore.

Planning for financial goals

Additional home buying: The couple must focus on paying back their existing home loan, redirecting all bonus and increments for the purpose. Also, since their existing composition is illiquid, they should refrain from an additional home purchase for the time being.

Son's education & marriage: The couple can set aside about Rs 21,000 every month. This can be invested in a large-cap equity fund, a gold fund and an international equity fund in equal proportion. They can increase the amount by 10% every year.

Retirement planning: Once the earlier financial goals are achieved, the couple can continue the SIPs in equity funds to accumulate a corpus for retirement. They should start contributing to PPF regularly.

Parental responsibility: The couple can start another SIP of Rs 10,000 in a mutual fund with 80:20 debt-to-equity ratio to create a corpus to support parents as and when needed.

There is no doubt that real estate is a good growth-oriented asset class. However, it is illiquid, indivisible and immovable. Creating a portfolio of real estate early on in life many a times jeopardizes overall fund requirements for meeting other financial goals. For example, imagine a family that has a piece of real estate costing Rs 1 crore but does not have Rs 25 lakh liquid to fund the son's education, or Rs 10 lakh to support an ageing family member. So, from an investment perspective, be careful while creating a real estate portfolio.

Apollo Munich launches two new insurance plans

Apollo Munich Health Insurance today launched two new plans under its Optima series - Optima Vital and Optima Super.

Optima Vital is a critical illness plan, which covers 37 critical illnesses against normal industry standards of providing cover for around 7 to 20 of these conditions, Apollo Munich Health Insurance said in a release issued here.

Another plan, Optima Super, caters to the need of having a low cost cover while one is employed and can be switched to a full-fledged plan at the time of retirement or when the need is felt, without the fear of rejection.

"Given the increased stress levels and changing lifestyles, Indians are encountering critical illnesses more than ever before. Not only the incidence rate of such diseases is increasing, the number of critical illnesses is also on a rise. Hence, there is a need for a one stop shop plan that covers all the major critical illnesses to help reduce the financial trauma related to critical illnesses," Apollo Munich Health Insurance CEO Antony Jacob said.

Optima Vital customers are given the option of taking e-opinion from Apollo Munich's panel of doctors, as and when required by them, he said.

"This is an inbuilt benefit and comes with all sum insured variants. Optima Vital offers the consumer lifelong renewal and shall terminate on first occurrence of any one of the defined critical illnesses. The entry age for the cover is 18 years, with maximum age of entry being 65 years. The policy also offers an income tax benefit," he added.

Optima Super is an aggregate high deductible plan that allows customers to enhance their sum insured coverage as per their need at a lower cost. Its customers do not have to cross the deductible limit at every claim incidence, but can aggregate all claims during a policy period over multiple hospitalisations to cross the deductible limit.

Apollo Munich is joint-venture between Apollo Hospitals Group and Germany-based reinsurance firm Munich Re.