The birth of a daughter turned the tide

The birth of a daughter turned the tide
Financial planner
Gaurav Mashruwala
meets a family that steers clear of the stock markets


Samir Ranjan had a financially comfortable childhood. His father is an occupational therapist and his mother is a retired teacher. The family has had a steady income flow and lives life simply. Both parents ensured that Samir’s necessities were met so that he could concentrate on his studies and future.
While his parents were into saving and investments, and his mother also kept the family budget, Samir never bothered with money matters. In fact, he became quite careless. Once, when he was 28 years old, his parents had sent him a demand draft of Rs 50,000. Samir did not deposit it in the bank for more than four months.
However, the birth of his daughter, Shreya, three years ago, has changed his attitude. There is disciplined savings and investment and he now micro-manages the family finances. Samir, 32, is also an occupational therapist, and works for the government of India at Dapodi, near Pune. His job involves rehabilitating disabled individuals occupationally. His wife, Sangeeta, is from Pune, and is the daughter of a naval officer. She is currently doing research in zoology.
What are they saving for?
Their top priority is to create a corpus of Rs 4 lakh for Shreya’s higher education after 17 years. Next, they want to move to a bigger house in 10 years. The differential cost would be Rs 15 lakh to Rs 20 lakh. Shreya’s marriage after 20 years will cost Rs 5 lakh. Lastly, they want a corpus of Rs 1 crore at the time of retirement, after 30 years. The family also dreams of owning a small car after two years. All the costs are at today’s rate of inflation.
Where are they today?
Cash flow: Total yearly inflow from Samir’s salary and Sangeeta’s fellowship and other interest is Rs 3.53
lakh. Against this, the yearly outflow is Rs 2.43 lakh, which includes mandatory savings, routine household expenses, insurance premium, school fees and expenses incurred on entertainment.
Net worth: Total assets are worth Rs 23.29 lakh. Out of this, assets worth Rs 15 lakh are for self-consumption. The cost of the house is Rs 13 lakh and the jewellery is worth Rs 2 lakh. The couple has no liability.
Contingency fund: Funds equivalent to about one month’s household expenses are lying in the bank.
Health and life insurance: The family is covered by Samir’s employer. Total life cover is worth Rs 1.50 lakh.
Savings and investments: Value of assets from savings and investment perspective is Rs 8.29 lakh. This includes Rs 2,000 in the savings account and Rs 18,000 in a fixed deposit. EPF/PPF Rs 19,000, NSC Rs 40,000, and Post Office monthly income scheme + recurring deposit Rs 7.50 lakh. All their assets are in debtbased instruments.
Fiscal report
They have a simple lifestyle. Expenses are well within their means. There is no loan. Contingency fund is low. Life insurance is inadequate. All life policies are investment-oriented. While Samir’s employer provides complete health cover, because it is a government organization, there could be red tape at the time of making an actual claim. There is absolutely no exposure in equity.
The way ahead
Contingency plan: First increase contingency fund to Rs 60,000, by setting aside any surplus money. Ensure that at least Rs 10,000 is kept in cash at home.
Health insurance: Opt for a Rs 5 lakh floating health policy for the entire family from an independent insurance company as a back-up.
Life insurance: Increase Samir’s life insurance cover to Rs 50 lakh through a term insurance policy.
Planning for financial goals
Daughter’s higher education:
As and when Post Office investments mature, transfer Rs 4 lakh into an index mutual fund. Since the goal is 17 years away, keeping funds in a debt-based instrument is very risky—while their principal amount will remain intact, they will have heavily lost to inflation.
Buying a house: (a) At the time of buying a bigger house, sell off the existing house and use the proceeds to purchase a bigger house. (b) Also, park the maturity proceeds of approximately Rs 3.50 lakh from Post Office schemes into a blended mutual fund which has 20% equity and 80% debt. (c) For the balance, opt for a housing loan.
Daughter’s marriage and their retirement: Systematically start investing Rs 6,000 in an index fund and Rs 1,500 in a gold fund every month to achieve these goals. Being a government employee, Samir is also entitled to several other tax-favoured retirement benefits.
If the couple is not comfortable investing in equity, then they should either drastically reduce their funds requirement for all financial goals or invest much larger amounts.
THE PLAN: The Ranjans have zero exposure to equity. Keeping funds in a debtbased instrument is unwise—while their principal amount will remain intact, over the years, they will have heavily lost to inflation