Sheela's husband passed away in a road accident 10 years ago. She put the life insurance proceeds in a fixed deposit and it has lost a substantial amount of value to inflation. Her daughter Mandira has a hearing impairment and is financially dependent on her mother. Sheela works as a Professor of Zoology and is 42 years old with 18 years left for her scheduled superannuation. She needs to save for her retirement as well as create a corpus for Mandira's maintenance after her own demise.
What She Has:
- Assets: 4 lakhs in Fixed Deposits, 5 lakhs in EPF
- Monthly Income: Rs 60,000.
- Monthly Expenses: Rs 40,000.
What She Wants:
- Build retirement corpus
- Supporting differently abled daughter
What She Should Do:
- Emergency fund: She should have Rs 2,40,000 (6 months expenses) for any unforeseen contingencies. She already has this amount in a fixed deposit which can be utilised if the need arises.
- Health insurance: She should buy a health plan to cover herself and her daughter. There will be some conditions and a medical check-up would be required. Read more in our article How to buy health insurance.
- Life insurance: Her daughter is dependent on her, so it is important for her to buy term insurance. A Rs 1 crore plan will cost her Rs 18000-19000 annually. This article explains the process of choosing and buying insurance: How to really buy insurance.
- Investment portfolio: Sheela's financial needs seem daunting when you factor in the need to create a corpus for her daughter after her own death. However, with careful planning, she can create a workable solution. Let's look at her two goals individually.
- Retirement corpus: Assuming Sheela maintains her current lifestyle, she would need around Rs 2 crore at the time of retirement 18 years from now. To accumulate Rs 2 crore, Sheela should start investing the Rs 20,000 she saves every month in 2-3 diversified equity funds. Additionally, she should aim to increase this amount by 5% every year, as her salary increases. If she follows this plan, Rs 2 crore will be within her reach.
- Mandira's maintenance after Sheela passes away: Sheela should consider if its possible to withdraw the Rs 5 lakh lying in her EPF account and invest it in a combination of multi-cap and mid-cap funds through monthly SIPs over the next one year. At an annual return rate of 13% over the next 38 years, this money will grow to Rs 5.2 crore.
If this is not possible, given the liquidity constraints in EPF, Sheela would need to cut down her monthly expenses by Rs 5,000 and invest it in equity funds through SIPs for the next 18 years of her working life, increasing the amount by 5% annually.
The most difficult part of implementing this plan is to stay the course and not get scared by the ups and downs of stock markets.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
