32-year-old Ashwin and his wife Kavita got married four years ago and live in a big city where they both have mid-level jobs in large companies. Ashwin manages a sales team for a consumer goods company, while Kavita is an engineer at an IT firm.
What They Have:
- Total Current Income: Rs 80,000 a month (Ashwin: Rs 50,000 + Kavita Rs 30,000)
- Monthly Expenses: Rs 50,000 (Rent: Rs 15,000 + Household: Rs 35,000)
- They will have a baby soon. So, Kavita may have to quit her job reducing their income to Rs 50,000 a month
- 5 lakh in EPF, 3 lakh in PPF, 50,000 in NPS and 4 lakh in FDs
What They Want:
- Buy their own house
- Child's education
- Save for retirement
What They Should Do:
- Emergency Fund: Before any investments, they must build an emergency fund by keeping 3 to 6 months income in an easily accessible form. Depending on accessibility of ATMs, this should be in a combination of actual cash, saving accounts and fixed income deposits with sweep in facility.
- Health Insurance: The necessity of securing health insurance doesn't need any emphasis. They should opt for a family floater plan with a cover of at least Rs 10 lakh. This will cost them about Rs 1,400 per month. These two articles will give Ashwin and Kavita all the information they need: How to buy health insurance and A Top Up for your medical needs.
- Life Insurance: Ashwin must insure his life as his wife and children will be dependent on him. At his age, the best choice would be a 30-year term insurance plan bought online. He must not under-insure himself--the sum assured must be equal to at least 5 years' income, in addition to covering any loans that might be outstanding. A term plan for Rs 50 lakhs will only cost him Rs 700-800 per month. If Kavita intends to quit her job, she will not need term insurance.
These articles explain the process of choosing and buying insurance: Lest calamity strikes and How to really buy insurance. A wide range of advice and product-specific information is available at https://www.valueresearchonline.com/insurance/ - Investment Portfolio: After the emergencies are taken care of, they should turn to investments for their goals. Money for their child's higher education will be needed about 18 years hence, while retirement is 30 years in the future. Over these long periods, equity mutual funds have high returns and low risk.
They should build up an aggressive portfolio with the following distribution:
| Type of Fund | Percentage of Portfolio |
| Mid and Small cap equity funds | 50 |
| Large and Mid Cap equity funds | 50 |
They should invest through SIPs in a disciplined manner and not try to time the market.
Given their current finances, buying a home is not feasible, especially when Kavita stops working. They can defer this goal to after Kavita's resumption of work. At that time, they should evaluate how much they can afford to pay in EMIs and accordingly take a home loan. Housing loan principal and interest repayments also carry tax benefits under Section 80C.
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