Lt Col Jit Bahadur Chettri, a 39 year old Indian Army officer, is posted in a remote area in North-East India. His wife Ritu is also an officer in the Army Education Corps. They have two sons, Sparsh and Utkarsh, aged 9 and 7 years respectively. He represents that rare breed of officers who are financially well-aware of the need to meet their financial goals comfortably.
When he approached us for financial planning this year, they already had a well-diversified investment portfolio. With a gross monthly pay of around Rs 1.8 Lakhs and the family spread over two locations, they had kept their monthly expenses well under control at 48,000pm, including Rs 15,000pm support to their parents. Since they had already accumulated more than Rs 10 Lakhs combined in their DSOPF (Defence Services Officers’ Provident Fund), they had sensibly pared their further monthly contributions to Rs 12,000pm. They had Rs 8000pm of SIPs in equity mutual funds where they had accumulated Rs 5 Lakhs. They had a good real-estate portfolio worth Rs 180 Lakhs consisting of four residential houses and land, including a house where they finally wish to settle down. For this, they had home loans totalling Rs 68 Lakhs, with EMIs of Rs 66,000pm, which were being comfortably paid. We found his net worth to be a healthy Rs 130 Lakhs after considering all assets and liabilities. However, they had a multitude of insurance policies where they were paying premium of Rs 60,000 per year. There were some policies taken by their parents for them over a period of time of which they had no details.
In their SWOT analysis, we found their balanced exposure to debt, maintenance of some (though less) contingency funds, high net worth and investing in real estate at an early age, to be their Strengths. In Weaknesses, we listed purchase of expensive traditional insurance policies, over-exposure to real-estate, low exposure to equity instruments, non-monitoring of equity mutual funds and no structured planning for financial goals.
We listed Twelve life-time financial goals for them, relating to their children, retirement expenses (exceeding their projected Govt pensions), regular replacement of their two cars, regular vacations, purchase of commercial property and home renovation. As per our calculations, they were likely to meet almost all their goals except the last two. However, there was no cushion in these calculations and there were plenty of wastages, which if controlled, could easily give them a better financial life within the same resources. After extensive interaction with them, we prepared their financial plan with the following major course corrections:-
- Comprehensive Will to be made for both at the earliest.
- Three months worth of monthly expenses as contingency funds at all times.
- Making two traditional insurance policies paid-up while surrendering a ULIP.
- Taking online term insurance plan for Rs 30 Lakh for himself and Rs 10 Lakhs for wife.
- After undertaking his Risk Profiling, suggestion to invest Rs 34,000pm through SIPs in a good mutual fund portfolio and to increase the contribution by 10% each year.
- Purchase Gold upto 5% of his portfolio regularly.
- Contribute regular amount to charity, online or offline.
Lt Col Chettri has started implementing all our suggestions very earnestly. He has already got a fresh mutual fund portfolio made, started the SIPs, and is in the process of sorting out his insurance policies. Other actions are also in various stages of implementations.
Col (Retd) Sanjeev Govila
CFPCM, CEO, Hum Fauji Initiatives
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