Need suggestions to aviod Financial Planning pitfalls

POSTED BY Kumar_G ON September 19, 2013 11:08 am COMMENTS (14)

Dear Manish/Ashal and other Gurus,

Thanks a bunch for  running such a wonderful forum. It’s  really helpful to illiterate people of Finance management.

I did all the mistakes like mixing of investment with insurance and no other thoughts on saving, just living as it goes with time. But, It’s my luck  I got jagoinvestor link on last August 15th   (a real Independence day for me) went through all the posts and gained some fair knowledge in this area J.

 Now, I’m working on my savings & investments and need your valuable suggestions to avoid pitfalls.

My Details:

Name: Kumar.G

Age: 29

Occupation: Software Engineer

Income : Monthly Take Home Rs. 50,000/-

Married: yes

Wife Age: 24 (House Wife)

Children: 1 (Baby Girl) : Age : 8months

Dependents : Wife , daughter and parents

 My Father is a retired State Govt Employee and he gets a pension of Rs.10000/- every Month. Mother is house wife. They live in my Native place and have a  own house.

 My Financial state:

 A)     LIC Jeevan anand : Rs.14500/- premium /year  for 2lac Sum Assured ( Total 4 premiums paid ). L

           à Planning to Discontinue this and have two new term insurance worth Rs. 1.2 Crore ( Not yet Taken, planning to have them in next month with premium of 11k-12k)

                                                        1. HDFC Click 2 Protect

                                                        2. Aviva iLife term insurance

  (After reading “Mistake in your Medical report while taking Term Plan – Real Life Experience” , excited to check my % of luck and experience with term plan)

 B)      SBI life insurance (Smart Performer): Rs.50,000/- premium/year for 5lac Sum Assured (3 premiums paid and 2 premiums pending )

-> Planning to surrender this police in November.Not sure how much I’ll get exactly after deductions.( Assuming I’ll get around 1.3 Lac in worst case)

 Q1. Please suggest best investment option for this 1.3 Lac.

 C)      PPF Account : I’ve a PPF account in SBI and investing Rs. 5000/-  per month

 Q2: Should I continue this?

D)     Chits funds : 5500/- per month ( It’s a two year Chit and my bad I started it on last march and can’t discontinue it) Helpless L.

 E)      I’ve a liquid cash of 3Lacs in my savings account.

 Q3. I want to keep this as emergency fund but want to get some fair returns on them. Please suggest an option?

 F)      My company provides medical insurance for Me and my Family. For each one 2 Lacs and a Family Floater of 5 Lacs.  (I’ve taken this medical insurance for my parents by paying an extra premium of 16k/anum from company )

-> Next year onwards, I’m planning to take a separate medical insurance for my parents.

 Q4. Is it a good idea to take policy outside for Senior citizens or should I have two medical policy for them?

G)     Recently registered one open plot on my name after reading “How Delay in Land Registration Costed Rs 50 lacs to Vivek – Real Life Experience”

 This is my over all financial status. I ‘ve no Loans/EMIs to pay so far.

 My financial goals(present values):

1.       50 Lac for Baby Education and Marriage (want this money in 15 years

2.       50 Lac Want to own a home in Hyderabad city In next 5 years. ( I do have a own house in my native, but want to have one @ my work place J)

3.       Retirement Fund 1 Crore and above ( 30 years )

 I can invest 20k per month ( excluding 5500/- chits amount). I don’t have knowledge on MF, SIP ,stocks etc… but I’m planning to take help from HDFC people on this. Recently I’ve taken a demat/trading account from HDFC ( Free for 1 year) to use just in case J.

  10k      Low risk and Low/Guaranteed retunes

  5k       Moderate Risk and Moderate returns

  5k        High risk and High returns

 So could you please suggest best investment portfolio options to achieve my financial goals with inflation. Looking forward for your valuable suggestions.


Kumar . G

14 replies on this article “Need suggestions to aviod Financial Planning pitfalls”

  1. ashalanshu says:

    Dear Kumar, normally I recommend to invest in only 2 funds. My primary choice is Franklin India Bluechip and Quantum Long Term Eq.

    Regarding performance of the funds, FIBCF was not performing well during 2007-2008. Later on it pulled up it’s socks well & performed well in 2009-2011. personally i do not put my weight in the rating as these are assigned more due to current performance.

    In the long run, if my fund is able to provide a return better than the benchmark, I should not be worried at all. In last 5Y i.e. 2008-2013, Sensex return is near zero. Still my funds are giving me positive returns.

    Disclosure – I do have my personal investments in the above mentioned funds, hence my views may be baised one.



  2. ashalanshu says:

    Dear Jwalant, Yes 2 15% inflation rate, it ‘ll surely be 1.63 Crore Rs. For education purpose calculate 15% as base rate. for other, use 10%.



    1. Kumar_G says:

      Dear Ashal,

      Please share you thoughts on the above queries when you have time.
      Also, need some recommendation on below funds.
      Franklin India Bluechip Fund (G) – 5k
      HDFC Top 200(G) -5k
      However these are performing low now and Crisal rating is 3 and 4 and valueresearch rating is 4. So is it a good options to have them in core portfolio for long run. past performance looks good though !!

      Thanks for your all help so far!


  3. ashalanshu says:

    Dear Kumar, in case of living expenses, please take 9-10% inflation rate as calculation. hving more money in hand is betteer than having no money or less money in your sunset years. 🙂

    Please tone down your return expectations from 15% to 111 or 12% maximum. So increase your mly amount for your Goals.

    Please feel free to discuss if you are in doubt.



    1. Kumar_G says:

      Hi Ashal,

      Thanks, I got the point.

      I’ll continue to invest 5k in PPF and depending on the 80C tax exempt limit I may put more.

      Could you please suggest best performing SIP MF’s for long term investment of amount 15k to start with.

      Also, I want to check my understanding on MFs performance and when to take a call to change the funds. “not to pay too much attention towards the long term SIP MFs. Review the performance once in a year and consider changing the funds only if they are performing under their respective benchmark and not with peers”. Is this correct?

      How many MFs one can have in their portfolio. What is the recommended number?

      For Term Cover, HDFC Click 2 Protect have no-medical checkups for 60Lacs cover. Though I declare all the medical history to them, how can I reduce the chance to decline the claim on medical ground.
      But For Aviva, they have medical checkups for 60Lac cover, So here I’ve great chance to avoid the aforesaid concern.

      btw, will it work if I take Aviva first with medicals done n have a copy with me and then go for HDFC Click 2 Protect, will it give any point here to reduce the claim rejection on medical ground. Since both the policy are taken at same time, it should be valid I guess. what you say?


      1. Kumar_G says:

        Dear Ashal,

        Please share you thoughts on the above queries when you have time.
        Also, need some recommendation on below funds.

        Franklin India Bluechip Fund (G) – 5k
        HDFC Top 200(G) -5k

        However these are performing low now and Crisal rating is 3 and 4 and valueresearch rating is 4. So is it a good options to have them in core portfolio for long run. past performance looks good though !!

        Thanks for your all help so far!


  4. Jwalant says:

    Dear Kumar
    For parents Medical insurance you can check with oriental family flotter you as proposer.

    Dear Ashal
    I had on query for child education. As per your example 10 L with 15% inflation the ammount at the end of 20 yerar will be 1.63 crore.Please correct me if i am wrong.

    As per yours exeprince for calculation of retirment income. child plan , marraige what should be ideal value of inflation rate individual catagorey wise..

    1. Kumar_G says:

      Dear Jwalant,

      Thanks for your advice. I checked the oriental family floater but its allowing only up to age 60 not beyond that 🙁 .


  5. ashalanshu says:

    Dear Kumar, let me try to answer your queries.

    1. Term cover of 1.2 Cr. is OK as of now.

    2. Calculate this way for Kid’s education. Put down the figure if the education happens today. Now inlfate the figure by 15% for each passing year. Calculate, how much do you need at actual consumption year. This calculated figure is your Target. For example, if today it’s 10L Rs. in 2013, in 2014, it ‘ll be 1150000 @ 15% inflation rate and so on.

    3. If you really do not need a home, please do not stuck up yourself in a big loan. the EMIs ‘ll eat up a god part of your salary (30-45%) and you ‘ll not have enough money to invest for other goals.

    4. 60% saving rate is actualluy a very good rate.

    5. there is nothing called the best. Opt the one, which is fulfilling your needs. Keeping your father’s age in mind, not many insurers ‘ll come forward to insurer him.

    6. Just like Kid’s education, calculate your living expenses in post retirement years (due to inflation) and then start saving for that target corpus.



    1. Kumar_G says:

      Dear Ashal,

      1. Ok, I’ll go with a cover of 1.2Cr and taking this cover from two private insurance companies
      1. HDFC Click 2 Protect 60L 2. Aviva I Life term insurance 60L for 30yr Term

      2. Dropped home lone idea . Thank you 🙂
      3. Thanks, I’ll continue the same 60% then
      4. Yeah, I’m worrying about my father has he entered in to risk zone 60+. However Star Health Senior Citizen Red Carpet seems to be covering me half the way. I’ll check few more and decide on this.

      Though we can’t predict the future rate, I’m scared to imagine 15% inflation rate.
      For example:
      Today’s Living Expenses say : 20000/Month
      Inflation : 15%
      Term: 30Yr (2013-2043) :
      Living Expenses @ retirement would be: 13L /Month
      What cost Rs. 20000 in 2013 would cost me Rs. 1324235.29 in 2043 which is a fearful number 🙁 , which I can’t even imagine as my goal :(.

      India Inflation Rate averaged 7.72 Percent from 1969 until 2013 (Source,assuming in next 30 yrs this average may increase to 10% (to just get some hope in investments).
      calculating with Inflation rate: 10%
      Living Expenses @ retirement would be: 3.4L /Month.
      So , I’m estimating my Retirement corpus as : 3.5Cr ( at least It seems to be achievable with a SIP 5k/month and 15% return for tenure of 30yrs ).

      5. Kid education 40L (15Yr term) + Marriage 50L (23Yr term) with 10% Inflation rate
      6. Retirement corpus : 3.5Cr (30 Yrs Term) with 10% Inflation rate

      Am I correct on calculations here! If my goal numbers are sensible, then will move on to actual investment part which even more scary part for me.


  6. ashalanshu says:

    Dear Kumar, nothing wrong in writing long post. Have you read it?

    If not please read it first. I’m ready to discuss all your issues in detail.



    1. Kumar_G says:

      Dear Ashal,

      Thanks for pointing me to that link much informative. Based on this, I’ve re-planed everything like below. Please correct me if I’m going wrong.

      1. Term Insurance : A very crude method is 15-18 times annual income + as on date loan liabilities. Since I don’t have any loan liabilities, I think 1.2Cr term cover is just fine.
      8L*15= 1.2 Cr
      8L*18= 1.44 Cr

      So I’ll raise it to 1.5Cr. It will cover my child education and marriage and 10 times of family living expenses. Is this fine?

      2. kid’s future : I can’t judge the exact figure for Higher education expenses but I feel 20 Lac will put me closer to that goal. Please suggest if my assumptions is incorrect. 30L+ open plot will cover my child marriage. (Open plot is in safe zone, so risk is negligible)

      3. Buying home : Buying home is not recommended, but Its really driven by emotional factor rather than business. I feel buying immediate possession home is far better than open plot in terms of risk. With my current financial condition should I consider this now or post pone? With a home loan , will I be able to cover other goals?

      4. Since I’m doing forced savings with royal expenditures cut down. I’m planning to invest 60% of my salary. Is this % saving correct ?

      5. I need to take a separate medical insurance for my parents, father Age:64 mother Age:55. I’m researching for best options. Please suggest me if you have any filtered ones.

      6. 1Cr Retirement corpus: I’ll continue to invest 5k in PPF as it falls in EEE structure. Since it is a 20yr tenure (15yr+ Extension of 5yrs) it may give around 20 Lacs and I need your help on investment plans for remaining amount.


  7. ashalanshu says:

    Dear Kumar, thanks for praising us. Are you realy interested to transform your life? The reason I’m asking for is simple – you w’d have to answer some real tough questions.

    How did you reach few figures regarding Term cover of 1.2 Crore, 1Crore as retirement corpus, 50L for kid’s education? Why did you open that Demat account if you do not have any idea of Stocks/MFs etc.? Are you dead sure that in next few years, you ‘ll not change job & ‘ll remain in Hyderabad for at least next 20-25 years? What about post retirement life?



    1. Kumar_G says:

      Hi Ashal,

      Thanks for your quick reply and really sorry for the lengthy post. Yes, I’m interested at the same time worried about my financial life ,so started working on this.
      These questions are real tough to me at the time of calculation as well and still showing their impact. All these figures, I mentioned based on present value. I may wrong on my calculation but hope your suggestions will help me to correct them.

      Let me answers one-by-one :

      1.How did you reach few figures regarding Term cover of 1.2 Crore:
      The information I had in my mind about a term cover is like this “ A term insurance should cover 5 to 10 times of our current annual salary”
      My current Annual salary is 8.2 Lac/Year , so just ensured my term cover will be more than10 times.

      2. 1Crore as retirement corpus ?
      @ retirement, l hope, I’ll have little responsibilities for that I need regular passive income like a pension. So planning to put some part of this amount in FD and get Interest as a regular income and some part to run small business and remaining as emergency fund.

      3. 50L for kid’s education?
      With today’s value, For Higher Education like Doctor ,MBA or any stream (as per my kid interest) may need at least 20Lac. Hope remaining amount + my open plot will cover my daughters marriage.

      4. Why did you open that Demat account if you do not have any idea of Stocks/MFs etc.?
      It’s because of corporate offers and easy process .
      While opening HDFC salary account, they offered me a demat account for free but rejected that time thinking I’ll never invest my money in share market.

      After going through many forums and blogs, I determined, that I need to invest money in market to get good returns with calculated risk. So to get start in that line, I just checked with HDFC representative who sits at my office and with a smiling face she offered me a big account opening farm. All I did was signing at all marked places, thats it Demat account opened and mapped with my salary account. It will be free for one year . Hence I’ll see for one year if it is worth for me or else close it.

      5. Are you dead sure that in next few years, you ‘ll not change job & ‘ll remain in Hyderabad for at least next 20-25 years?
      No, I’ll change my job for sure but high preference will be given to Hyderabad location. Hyderabad is our state capital city and owning a house will give settlement/satisfaction to my family and it will fetch some good rent as well.

      6. Post retirement life?
      Want to run a small Nursery center in my home town. I did this at my school age and want to continue the same after retirement as well.

      Please suggest me to plan it in more healthier way.

      Sorry for a lengthy post again!


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