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Parth Kapadia (38) and his wife Karuna (34) (Ravindra Joshi/Mint)
Parth Kapadia (38) and his wife Karuna (34) (Ravindra Joshi/Mint)

Financial planning lessons from a medical emergency

  • Parth Kapadia and his wife Karuna have realised that having insurance and an emergency corpus is important
  • Both Parth and Karuna are very careful about taking on debt. While Parth does not use a credit card, Karuna uses one for her business expenses and travel but she pays her bills on time

Parth Kapadia (38) and his wife Karuna (34) are living a life many would dream of. Along with their dog, a beautiful golden retriever, they live in a spacious apartment in Pune’s plush Koregaon Park. Parth is an executive in a multinational bank and Karuna runs her own fashion business. The glamorous exterior, however, hides the struggles they have been through.

Difficult road

Around seven years ago, Parth’s mother, who did not have a health insurance, was diagnosed with cancer. Parth’s health cover at his company covered hospitalisation expenses for his family, including his mother, but did not cover the expensive drugs and injections that were needed for her treatment.

The emotional trauma of having to see a close family member suffering from a terminal illness for draining enough, Parth also had to shell out 5,000-50,000 per month on the treatment, for nearly three years, draining him out financially as well.

Two years after his mother was first diagnosed with cancer, Parth met Vinit Iyer, a Pune-based financial planner, who showed him how to use liquid funds to meet variable short-notice expenses like medical treatment.

Until he met Iyer, Parth was putting most of his surplus money in the Public Provident Fund (PPF), which typically earns a higher interest rate than fixed deposits (FDs) and gives tax-free returns. But PPF has its limitations—you can’t invest and redeem from it at will and hence it is not suited for short-term or variable expenses.

The planner helped them put in place was an emergency corpus using liquid funds.

Iyer also recommended a health insurance policy, apart from the one his company provided, and a term insurance policy for the family. Parth understood the importance of taking health insurance, given his experience with his mother’s illness. Last but not least, the planner recommended mutual funds as a tool to build wealth.

The big goals

Parth and Karuna have two chief goals—buying a house and retirement. But they are not in a hurry. “We don’t want to buy a house for the sake of it. We do want to own a house but there are other things we want to do as well, like travel," said Karuna. Parth has inherited a family home which they rent out and this gives them some level of security. “Vinit chalked it out beautifully. He explained to us that it’s not like we’re going to be able to buy a house today," said Parth

“If the couple wished to purchase the house they were renting four to five years down the line, its value would have become x. If they started investing, I told them, how by the time they reached their target date, they would have the required amount ready or at least a reasonable part of it," said Iyer.

For retirement, they have invested in mutual funds. “I also have a National Pension System (NPS) account. Vineet monitors the portfolio and rebalances it from time to time," said Parth.

The couple has smaller goals too. Every year, they take at least one holiday trip. “For that, we don’t dip into our savings. We just use a part of our current income invested in liquid funds," said Parth.

The liabilities

Both Parth and Karuna are very careful about taking on debt. While Parth does not use a credit card, Karuna uses one for her business expenses and travel but she pays her bills on time.

Parth has a car loan, but the interest on it is far more than what an equivalent amount of money would earn if invested. So the planner has been advising him to close the loan as soon as possible. “I plan to discuss it with him in my next review meeting and probably pay it off," he said.

Parth saves 25-30% of his salary every month and about 80% of his annual bonus, while Karuna saves 30-40% because she has irregular income. “The moment I get paid for a project, I try to save as much as I can," she said.

Their savings rate being adequate, the couple hopes to meet their goals smoothly with the help of the financial planner.

Changes I made

  1. I have switched from FDs to mutual funds and NPS
  2. I save first and then spend, unlike earlier
  3. I now have a term plan and health insurance

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