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Obstacle is just a word

Chethan's disability is not an obstacle in the path of achieving his goals

Chethan is 33 years old. He has a wife and a son, aged one-and-a-half years. Unfortunately, Chethan met with an accident and suffered a severe disbility. He has been given a compensation of Rs 15 lakh, of which he must keep Rs 4 lakh in a fixed deposit for two years. Currently, he is working in the retail sector.

Income Amount (Rs)
Salary (Monthly) 40000
   
Expenses (Monthly) 20000
   
Savings  
RD 16000
EPF 26400
PPF 145763
Stocks 60000
Gold 500000
Grant Payout 1100000
Grant FD 400000
Total 2248163
   
Insurance Premia  
Life Insurance Premium (endowment) 137690
Term Insurance 5744
Health Insurance 20000
   
Loans/Liabilities 0

What he has (Cash Flow)

  • Monthly income: Rs 40,000

What he wants (Goals)

  • Child's schooling and higher education
  • Retirement corpus
  • A small car
  • A foreign trip

What should he do?

Emergency fund
Chethan should keep aside Rs 2,00,000 for contingencies. For this, he can earmark the amount he will get on surrendering his ULIPs. He can keep this amount in a savings account with a sweep-in facility. This will ensure both liquidity and higher interest.

Health insurance
Chethan has ICICI Prudential Health Saver plan. It is an expensive plan because of its investment element. Chethan should go for a pure health plan. He can evaluate individual and family-floater policies available. He may have to undergo a medical test as well.

Life insurance
Chethan already has a term insurance of Rs 30 lakh. However, he needs to increase the cover by at least Rs 70 lakh. Due to his disability, only a few insurance companies will give him a term plan. He can apply for pure term plans with HDFC Life or ICICI Prudential. He will need to declare his physical condition to the insurance company.
Chethan has quite a few ULIPs and traditional insurance policies. These neither give sufficient cover nor do they generate good returns. He should surrender these plans.

Roadmap to goals
Chetan's goal amounts are given below. His child's education is a non-negotiable goal. We have taken a conservative amount for this.
From the compensation that he has received from his employer, he is legally required to park Rs 4 lakh in a fixed deposit for the first two years. On maturity, he will get Rs 4.6 lakh (at 7.25 per cent per annum). He should invest Rs 9 lakh of the remaining Rs 11 lakh in an equity mutual fund in a systematic way over 18 months (approximately Rs 50,000 per month). This is to ensure that he doesn't catch the market at a peak. He will now be left with Rs 2 lakh. This amount, along with his recurring-deposit amount and the FD amount of Rs 4.6 lakh, can be used to buy the car and meet the education expenses for his child for the first three years.
He should switch from equity funds to a liquid fund to meet the education expenses in a block of three years. His vacation goal is not comfortably achievable with the available surplus and assets. However, we have stated the required SIP for this, provided he extends the goal by two years. Chethan won't be able to meet his retirement goal with the current SIPs. But it can be achieved if he increases his monthly SIP by 10 per cent every year.

Investments
We do not believe in gold as an investment. But Chethan can keep the gold he has as an emergency fund. He should invest in stocks directly only if he understands equity and can manage the risk involved. Otherwise, he should invest through mutual funds. Since the returns from the PPF are low, he can continue with the minimum investment to keep the account active and direct his tax-saving investments to an ELSS.