WHAT TO DO WHEN YOUR SAVINGS DONT SEEM TO BE ENOUGH Ram is 30, has recently gotten married to Sapna who is 27, and he and his wife are planning to have their first child in 3 years. He lives in a comfortable although small apartment of his own, in a building where the society bills are very high due to major maintenance work that is required. Rams Financials His current annual income is Rs. 10.80 lakhs, that is Rs. 90,000 per month after taxes. His family household monthly expenses are roughly Rs. 50,000 (including building maintenance expenses of Rs. 15,000 per month). He invests Rs. 35,000 per month, and saves Rs. 5,000 per month. He expects his salary to grow at 10% per year. Sapna is a home maker and hence is not earning. He had a family medical insurance that covers Sapna and himself, for which he pays Rs. 12,000 per year. His company does not provide medical insurance. He has no other insurance. His accumulated EPF is Rs. 40,000 and he invests Rs. 780 per month into his EPF, which his employer matches. Rams Assets and Liabilities Ram has no liabilities. He has a PPF account where he invests Rs. 70,000 per year and wants to continue doing so. The current value in the account is Rs. 11 lakhs. Ram has equity mutual funds worth approximately Rs. 4.50 lakhs, and direct equity of Rs. 1.50 lakhs. He has liquid funds worth Rs. 75,000. Thus totally by the age of 30, Ram has accumulated Rs. 18.50 lakhs across debt, equity and liquid funds. He has no gold exposure. His residential home is worth Rs. 2 crore so his total net worth is Rs. 2.18 crore, distributed as follows:

Rams Life Goals 1. The first thing on Rams mind is shifting to a bigger or even a same size apartment, in a better building. The value of his house currently is around Rs. 2.00 crore, and he knows that if he wants to move to a better location he will need to sell his current home and also spend an additional Rs. 50 lakhs to move into a Rs. 2.50 crore apartment. This is something that Ram does not want to compromise on. He plans on taking a Rs. 50 lakh home loan but doesnt know if this is the best option for him, as he also wants to save for his retirement. He would like to do this immediately i.e. in 2012. 2. Ram wants to buy a new small car, worth say Rs. 4 lakhs. He doesnt mind a second hand car. He can sell his existing vehicle and will get Rs. 1 lakh sale value. He would like to do this in 2012 as well. 3. Ram wants to provide for a medical contingency corpus of Rs. 5 lakhs within 4 years i.e. by 2015. 4. Since his wife and he are planning a child in 3 years time, he wants to spend Rs. 20 lakhs in todays terms on the childs higher education, to be achieved when the child turns 18 that is in 2032. 5. He would like to take his family on annual vacations worth Rs. 2 - 2.50 lakhs per year, but this is a very low priority goal and he doesnt mind if he doesnt achieve this. 6. Ram would like to retire at the age of 60 in 2041. His post retirement life expenses will be Rs. 35,000 per month. Rams primary concern is shifting out of his current house into a newer building, and building a medical contingency fund. Rams brother Shyam has been trying to convince Ram that taking such a large home loan right now is not a good idea, as with a Rs. 50 lakh home loan, the EMI will be Rs. 50,000 per month for 20 years. This means that for the next 2-3 years Ram will have to stop all other investments and only pay his EMI and his household expenses. Instead, he recommends Ram to invest in a much smaller property as an investment, with a Rs. 20 lakh home loan, and give it out on rent. When the property appreciates in value, he can sell it, repay his home loan, and will have made a tidy profit on the sale. Ram is also concerned about the markets right now. His brother has been telling him that now is a good time to invest in equity, as the markets are falling so he will be able to buy low. Ram however feels that the volatility in the equity markets is too much for him to tolerate, and he would rather redeem his funds and go into debt. Based on the above, answer the following questions: 1. Are Rams priorities in order? Should he first plan for his retirement and then worry about moving to a better building? Or should Ram take the home loan? 2. Ram has very broad knowledge of insurance and wants to take a ULIP with his wife as the nominee. He wants to know if this is a good idea, and how much premium should he invest per year (Optional to solve- Bonus Points) 3. How should Ram structure his finances to achieve his life goals?