Financial planning: Use gold and your FD savings to fund marriage

Varun Shah can afford to buy a house immediately. However, he needs to wait to buy a car

Varun Shah, 28, from Gujarat works as a senior design engineer in Truchip Solutions, a Noida-based IT company. Buying a car and marriage are his near-term goals. Buying a house and overseas travel are some of his other medium-term goals. At present, Shah has very low equity exposure. His other financial weakness is that he solely depends on his employer’s health insurance and has also ignored life and disability insurance. On the positive side, he has been maintaining a contingency fund and does not have any liability. His parents are also not dependent on him.  

Shah brings home a monthly salary of Rs123,000, and his monthly household expenses add up to Rs30,000, including house rent, utility and lifestyle expenses. He also spends around Rs30,000 annually on vacations.  

Contingency fund

Shah should create an emergency fund equal to his three months expenses. His existing fixed deposit of Rs300,000 should be allocated towards this, and he should invest in an ultra short-term fund.

Life insurance

Shah already has a traditional plan and is paying an annual premium of Rs7,000. The internal rate of return of both his traditional plans from LIC, after considering present surrender value, future premiums payable and expected maturity value based on current bonus rates is unlikely to beat inflation. Hence, he should surrender the plan. Accordingly, he is advised to get an online term plan of Rs10 million for 30 years, which will cost him Rs12,000 p.a. 

Health insurance 

Under the health insurance provided by his employer, Shah is covered for Rs250,000, which is not sufficient. He should buy a health plan of Rs500,000 sum assured. This will cost him around Rs6,000 annually. He should also get Rs2.5 million critical illness insurance and Rs5 million accident disability insurance. This will cost him around Rs13,000 a year. The premium paid up to Rs25,000 for self and family and additional Rs50,000 paid for parents is available as deduction u/s Section 80-D.
 

Goal Planning 

Home Purchase: Shah would like to buy his own home for a total cost of Rs 70 million in present value after three years’ time. He should buy the same within six months as he already has the down payment available with him.

Marriage Funding: He is planning his marriage within the next 12 to 18 months and wants to spend around Rs 600,000 at that time. His existing fixed deposit of around Rs 250,000 and gold investment of Rs 200,000 is allocated towards this goal. The monthly surplus of Rs 20,000 should be used to fund his marriage. 

Retirement: Shah is planning to retire at age 60 years. He will require a corpus of Rs 80 million to take care of his retirement life, that is, up to 80 years of age. The corpus required is assuming household expenses of Rs 30,000 a month in present terms and 7 per cent inflation. 

Car Purchase: He would like to buy a car after one year, which will cost him Rs 800,000 in present value. He should opt for a car loan after five years. Assuming a rate of interest of around 9.50 per cent, the equated monthly instalment will be around Rs 16,800. The car should be bought after building the corpus for marriage. 

Dream Vacation: Shah wants to go for a dream vacation with his family after four years. This will cost him Rs 500,000 in present value. He should start a new monthly systematic investment plan of Rs 16,000 in an equity savings fund for three years. Withdraw accumulated amount after the completion of four years.