6th Jan 2011 Financial plan (Def.

) - An umbrella plan, which provides general guidelines, policies and framework to manage an individuals or a familys assets, liabilities, responsibilities and investments. Note: This plan would be changed as the discussion matures. Investment options available S N Product Risk Level (1= lower, 5= highest) 1 Infrastruct ure Bonds 2 Return Expect ed Advanta ges Disadvant ages Remark

7.59%, fixed

Long term bond. With option to sale after 5 years.

5-years lock-in. Not liquid.

Invest in this year and next. Rs. 20,000/per year.

Government Bonds (Gilts) Bank FDs

6-8%, fixed 7-10%, fixed

Sovereign Initial guarante investment ed. s in crores. Tax rebate for 5year FDs. Can be of customiz ed tenure. Almost guarant eed, since RBI bails out every bank, if the case indeed Lower return than the mutual funds.

Not Recommend ed The timings could be customize d so that calculated funds are available at certain dates.

arises. 4 Company FDs NSCs- PF, PPFs, Post Office Savings etc. Gilt Mutual Funds 3 7-13%, fixed 8-8.5, fixed % Higher than bank FDs. Secure, and tax rebate. Needs tracking. Long term lock-in, e.g. 15 years for PPF. Needs demat a/c Not Recommend ed Must have been exhausting the 1.00Lac ceiling. Can be used to park for short to medium term.

7-9%, theore tically variabl e, practic ally fixed

Though returns are not assured, not much fluctuati on occurs. Very liquid. Least risky equity exposur e.

Index fund

1314%, variabl e

Needs demat a/c. Return based on the markets.

Either index fund or equity diversified mutual fund should be chosen, as they are more or less similar, with index fund being less risky and offering less return. Funds can be parked with a minimum time horizon of 2 years. Refer to the

Equities Diversified Mutual Funds

1216%, variabl e

High returns.

High risk and the return depend on the prevailing stock market. Demat

account eases the sale/ purchase. 1 0 Sectorspecific mutual funds 5 1418%, variabl e Returns could be higher if decisions are rightly calculate d. Insuranc e plus investm ent. More risky than the diversified mutual funds.

strategy section.

Not Recommend ed

1 1

ULIPs

1214%, variabl e

The tax rebates will cease w.e.f. from 1st April 2012. Very risky. Needs constant tracking. Needs demat account.

May invest this year and next. After that, tax rebate will end. Not Recommend ed

1 2

Direct Equities exposure

1619%, variabl e

High return, highly liquid.

1 3

Gold

7-8%, variabl e

Hedge against inflation .

It has already risen too much, and further returns are not expected to be great.

Not more than 510% of total pool. Initially in the Demat form, it may be converted into jewelry at the marriage time. Since time horizon is less than 5 years, it is not recommend ed.

1 4

Real estate venture (e.g. flat, plot, shop etc.)

2-3% rent and 67% appreci ation. , variabl

The only physical asset. Can provide rental returns,

Capital intensive. As stamp duties are high, needs minimum time

e return.

which are quite stable.

horizon of 5-7 years to get meaningful returns.

Assumptions & Milestones

Overall risk appetite is conservative-to-moderate, say 3 on the scale of 5, with 5 being highest. Liquid cash of around 50-60K will be maintained in savings account, so that the investment pool is protected from unplanned expenditures. The planned responsibilities are-

o 2012: Kukus marriage o 2013: Kukus MBA (Partial) o 2014: Mukus PG o 2015: Mukus marriage o 2018: Retirement
Strategy

1. For the financial year 2010-11 and 2011-12, use infrastructure bonds
(IDFC opens on 18th Jan 2011), with maximum of Rs 20,000 for each year.

2. If the 1Lac 80C limit is under-utilized, ULIP may be bought. (Max ULIP through Amway, Mamu) 3. Use gilt mutual fund or debt mutual fund to park short term money, with tenure having 15 days to 6-7 months.

4. Use FDs, to fine tune the expenditure. Say I will need 2Lac in July 2012
for certain fees payment, I will reduce my equities mutual funds (index or diversified) during Jan-Feb 2011 itself, and park the money in FDs maturing near the particular date.

5. Use gold to hedge against inflation. For both marriages, assume how
much gold are expected to be given, and then invest in gold ETFs (gold mutual fund) for that amount. At the time of marriage, these units could be sold and proceedings will be channelized to buy the jewelry.

6. Use equities mutual fund (index or diversified) for parking the money
with tenure more than 1-1.5 years. The prices (NAVs) fluctuate daily, and if markets are in down phase, selling them would not be a feasible option. However, they are expected to give high returns, because a) they have done so in past and b) India is in an economic super cycle. We can ride this cycle, provided we have appetite for digesting the fluctuations.

7. If interested in the real estate venture, another analysis would be

required, and all plans will change accordingly, with the realty venture being at the center.

With Demat Account- Dynamic allocation, i.e. decisions would be taken on 3-4 times a year, depending upon the market conditions and the financial needs of next 12-18 months. One account will suffice all needs. This section could be discussed over the phone. Without Demat Account- Static allocation, i.e. decisions would be more or less fixed, say after initial decisions, they will be seldom changed. Micro-plan for KukuInvest in ELSS- HDFC Tax Saver with Dividend Option. She can add another one to reduce risk, in 60:40 ratios, preferably Rs 10,000/- per month in total, to begin with. Please consult me or Mamu, in April 2012, as new income tax rules (DTC- Direct Tax Code) are expected to be implemented from 1st April 2012. Micro-plan for MukuConcretize your next academic course, after analyzing your interests, capabilities, and prospects of the course. This will also help in the financial plan.