Wealth Management for Working Professionals
Background
Working Professional
Investments In Bank FDs
Improper Asset Allocation
Case Characteristics
- A working professional is engaged in outsourcing work for his US counterpart. His family income is Rs.2.5 lakhs per month, and investments of Rs.50 lakhs in the form of bank fixed deposits.
- He wishes to invest in equity markets, but a prior loss-making experience has made him skeptical about the same.
Fascinating Findings
- Client and his family have taken a term life insurance of Rs. 1 crore.
- After all monthly expenses and commitments, client’s family has a surplus of Rs.80,000 every month in their bank accounts.
- Client’s current investment portfolio yields him an annual return of around 7 to 8%. As the inflation rate in urban cities are around 4 to 5%, his money was growing by just 2 to 3%.
Actionable Alternatives
- Rs. 40 lakhs from client’s investment in bank FDs, which yielded an annual return of 7.5%, be withdrawn and invested in the following products that provide regular, fixed returns
- Rs.10 Lakhs in a state government secured bond with an annual return of 10.25%.
- Rs.10 Lakhs in a private bank’s bond with an annual return of 10.5%.
- Rs.10 lakhs in a secured, non-convertible debenture with an annual return of 9%.
- Rs.10 lakhs in a capital protected, market-linked debenture with an annual return of 9.25 to 9.5% (interest amount to be received upon maturity)
- 4 monthly systematic investment planning (SIP) payments totaling to Rs. 40,000 be started from the monthly surplus balance in bank for a minimum period of 7 years (one each large-cap, mid-cap, small-cap and multi-cap funds).
- We monitor the markets, and on days when markets crash, additional units be purchased using remaining balance in bank, to benefit from the lower purchase value of the net asset value (NAV) of the mutual funds.
Remarkable Results
Client Will Earn Additional Rs. 92,500 Annually.
By switching to other fixed income market products from Bank FDs, the client is set to earn an additional Rs.92,500 every year.
Rs. 4,62,500 Total Additional Benefits After 5 Years.
By the end of 5 years, the client will make a total profit of Rs. 4,62,500 from his investments as mentioned above.
SIP Investments Growth Up To Rs. 54 Lakhs.
Investment in SIP with 13% average return grows up to Rs.54 lakhs, which otherwise would grow up to Rs.38 lakhs as bank savings.
