Ask The Finapolis
The Finapolis|June 2017

Col. Sanjeev Govila (retd) of Hum Fauji Investments answers readers’ queries on investments, taxation and personal finance. Do you have a question you want answered? Email your question to feedback@thefinapolis.com

I have read reports which assign top marks to ICICI health insurance policy but would like your unbiased comment. I currently have a health insurance policy of National Insurance but the same is ranked very low in that report. Could you offer me some recommendations?

— Ramesh Vyas, Mumbai

There are many parameters while choosing a good health insurance provider. The most prominent of these are – diseases covered, branch and hospital network, insurance cover, premium charged, claim settlement, loading, out-patient department cover, room rent cap, sub-limits/ co-pay clauses, and other policy riders. Some of the above factors may be more important and others less important for you. Hence, while rankings help, it entirely depends on the parameters that fit you, the weightage given to each one of them in the overall ranking and whether it meets your requirements. The rankings may or may not be partially or fully in line with your requirements.

As far as ICICI Lombard’s health insurance is concerned, it is definitely a good insurer to go ahead with, provided your requirements are met. Hence, my suggestion is to take an insurance company, which has the kind of policy you wish to have, is affordable to you, has a good hospital network in your area where you reside and caters to the diseases that you wish to cover yourself against. The rankings provide a good starting point for your hunt for a good policy but cannot be the sole criteria for deciding it.

How much should my saving be to attain the following goals: Currently I am paying EMI of 26,500 and my personal expenses total 52,000 per month (including house expenses and travel)? My monthly salary is Rs 1,10,000. Could you also break-up the savings in terms of the following parameters? Education fund; Marriage Fund; Health Fund; Travel Fund; Retirement Fund.

— Neenad Kadam, Mumbai

You have not stated your age and your child’s details. Hence, I am assuming that you are 32 years old, your child is 4 years old, you are likely to retire at 60 years of age and you are amenable to investing in mutual funds (equity and debt). Further, I’m assuming inflation at 7.5% per annum, approximately 12% annualised returns from equity funds in the long run and about 8.5% returns from debt funds.

If I give it out in figures, then you need to keep aside approximately Rs 11,500 per month for your child’s graduation, considering cost of graduation to be Rs 3,50,000 per annum for four years currently and assuming that the costs grow at about 10% per year on a compounded basis. In this, you also have a very good option of increasing your mutual fund Systematic Investment Plan (SIP) amount at a rate of 5-10% every year. If you increase by 5% per annum, then you need to start with Rs 10,000 and if you increase by 10% then begin with Rs 7,500.

Similarly, for post graduation expenses, you need to invest per annum Rs 9,500 in SIPs. If this amount is increased at 5% per year, then Rs 8,000 per month needs to invested, while Rs 6,000 would be enough if you increase it by 10%.

For your child’s marriage, we may assume that Rs 15 lakh is required in today’s terms. You need to thus put Rs 17,500 in SIPs (or Rs 15,000 if you increaseby 5% per year or Rs 11,500 for a 10% increase per annum).

For travel expenses of Rs 50,000 per annum, you need to invest Rs 18,000 in SIPs (or Rs 17,000 considering a 5% increase and Rs 14,000 factoring in a 10% increase per annum).

For retirement, you need to keep aside Rs 38,000 per month. If your SIPs are increased at 5% per year, then Rs 30,600 are to be invested per month and if it is increased regularly at 10% per year, then Rs 18,500 in enough. Here I’ve assumed that you would wish to maintain your lifestyle even after retirement, i.e., expenditure equal to Rs 52,000 per month (in today’s terms).

As you can see above, everything requires a lot of money and you will have to prioritise your requirements, costs and savings pattern, while making sure that you have a reasonable life style currently too.

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