Don't put all your eggs in FD basket

Always use term plans to get adequate life cover Sunil George (40) lives in Mumbai with his wife Mary (38.) Sunil, who has done his LLM and is pursuing a PhD in law, works in the private sector. The couple has two children -son Emmanuel (13) and daughter Sara (11).
What are they saving for?
Their most important goal is to create a corpus of Rs 10 lakh each for their children's higher education. This is an estimated amount and, if required, will be enhanced. A similar amount is also needed to fund each child's marriage.
For retirement, which is a few decades away , the couple wants a corpus with which they can maintain their existing lifestyle. They wish to create a fund of Rs 5 lakh to support their parents in case the need arises. The couple wants to purchase one more house. They also wish to own a holiday home, a luxury car and go on a foreign vacation.
These costs will be revised on the basis of inflation.
Where are they today?
Cash flow: The couple's gross annual inflow from all sources is around Rs 12.25 lakh against an annual outflow of Rs 10.50 lakh. The outflow consists of routine household expenses, payment of insurance premiums, taxes and regular savings and investments.Net worth: The couple's total assets are worth Rs 1.22 crore.These include assets for personal consumption like a house and a car, among others, worth Rs 1.03 crore, cash and near-cash assets worth approximately Rs 6.50 lakh and invested assets worth Rs 12 lakh. There is no outstanding liability as of now.Contingency fund: Against the cash and near-cash assets of Rs 6.50 lakh, the couple incurs mandatory monthly expenses of Rs 47,000. So they have approximately 13.7 months' reserve.Health & life insurance: The couple has a family floater health policy of Rs 3.60 lakh. Sunil has life insurance of Rs 6 lakh, while Mary's life cover is Rs 1 lakh. This is mainly by way of investment-oriented policies.Savings & investment: The couple's balance in savings bank account is Rs 1.25 lakh and they have a fixed deposit of Rs 5 lakh. Invested assets include shares worth Rs 1.30 lakh, insurance policies worth Rs 7 lakh and EPFPPF worth Rs 4 lakh.
Fiscal analysis
The couple is saving about 38% of their inflow. Considering that this is a single-income family with two young children, the saving rate is commendable.The large amount in a bank FD needs to be redeployed for achieving long-term goals. The family's health cover needs enhancement. Their life cover is insufficient too. They need to purchase additional life insur ance in the form of a term plan.
The way ahead
Contingency fund: From the total balance in the savings account and bank fixed deposit, the couple should maintain only Rs 1.40 lakh for contingencies. The balance should be redeployed according to the following recommendations.Health & life cover: The couple should enhance their health cover to Rs 5 lakh each for themselves and Rs 3 lakh each for their children.Sunil's life cover is insufficient and should be enhanced to Rs 1 crore in the form of a term plan.
Planning for financial goals
Children's education: The couple must earmark their existing equity investments for this goal. Also, they can start an SIP of Rs 15,000 in a mutual fund scheme which has 15-20% in equity and the rest in debtbased instruments. They can increase the allocation by 10% every year.Children's marriages: The couple must initiate an SIP of Rs 5,000 in an index fund to build a corpus for this goal.They can increase the amount by 10% every year.Retirement planning: Sunil can continue to contribute to EPFPPF. The additional funds in the bank FD can be redeployed in an equity mutual fund scheme systematically .Also, the couple can start an SIP of Rs 5,000 in the same mutual fund scheme. Once sufficient funds for their children's education are created, the allocation for retirement can be increased.Parental responsibility:The couple can convert existing insurance policies into paid-up policies. They can use the premium thus saved every year to build a corpus to support their parents, if the need arises.Other goals: For the time being, the couple must focus on more important goals.
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