Working individual 4

Personal details:

Particulars Description

Name Rajeev Sharma

Age 38 years

Occupation Service

Job profile Business finance analyst

Qualification MBA

Marital status Married

Family Dependents

Relation Name Age Note

Wife Minakshi Sharma 36 years Housewife

Son Tanay Sharma 6 years Student

Medical history of family

Name Medical details Description

Rajeev Sharma Clean N/A

Minakshi Sharma Clean N/A

Atharva Sharma Clean N/A

Investments
 Type Name Amount (in Expected
lakhs) ROR
Liquid Assest Saving account 16.5 5%
Debt asset FDs, PPF, EF+ 20.60 8%
Gratuity
Equity asset Stocks + 8.77 12%
Mutual funds
Real estate Agriculture 45 10%
Land

Family income

Particular Amount
Rajeev’s income 250,000
Total income 250,000

Monthly expenditure

Particulars Amount (in Rs.)

Monthly EMI of car loan 10500
Educational expense 15700
Monthly insurance premium 1050
Household 31000
Lifestyle 9000
Miscellaneous expense 8000
Medical expense 1000
Car insurance premium 2000

Family savings

Monthly savings: monthly income – monthly expenditure

250,000-78250 = 171,750

There is no need to pay for a house because Rajeev's job provides housing.

Risk profile:
In order to understand risk profile of Mr. Rajeev better, we further inquired him about his
preferences and got the answers.

i. Question: Awareness of investment classes and types?

Answer: Has a fair knowledge and understanding of the various investment
classes and about the functioning of such markets.
ii. Question: Preference of the duration of savings? (Short, mid or long)
Answer: Is more inclined towards long-term savings for his child’s education
and wedding.
iii. Question: Does he need/want to withdraw his savings’ funds before maturity
or in between the terms?
Answer: No, he has no such requirement or intent.
iv. Question: Willing to take higher risks for adjusting for inflation?
Answer: For adjusting the effects of inflation he is ready to take risks
v. Question: His expected returns from his investments and risk tolerance?
Answer: If he gets a return of 14-15%, he is also ready to take a bit higher risk
than average.
vi. Question: Riskiest investment made till now by him?
Answer: Not very risky investment is made by him.

The Sharma’s fall within the ‘Growth' category of the Investment Risk Profile. This is based
on their responses to the Risk Profiling Questionnaire and the talks that followed. If they have
a Growth profile, they will be willing to tolerate a little amount of risk in their financial
arrangements if it is appropriate. They will, in particular, be willing to accept some
investment return volatility in order to attain strong long-term returns.

Analysis of financial position of the family

ASSETS
Particulars Amount (in Rs.)
Liquid Assets
 Cash in hand 6,00,000
 Savings Account 16,50,000
  Mutual Funds 5,27,000
 Stocks 3,50,000
Property
 Agricultural Land 45,00,000
 Furniture 2,25,000
 Other household assets 65,000
Personal property
 Vehicle 15,50,000
 Jewelry 7,75,000
Total assets 1,02,42,000
LIABILITIES
Particulars Amount (in Rs.)
Current liabilities
 Short-term debts (bills) 2,95,000
 Other current liabilities 4,65,000
Long-term liabilities
 Car loan 12,00,000
Total liabilities 19,60,000

Net worth calculation

total assets = Rs.1,02,42,000

Total liabilities =Rs. 19,60,000

Net worth = Rs. 82,82,000

1. Financial Ratios (Tentative values as per the records disclosed)

i. Current Ratio (CR)

Here,

Monetary assets = Rs. 22,50,000

Current Liabilities = Rs. 7,60,000

So, CR = 22,50,000/7,60,000 = 2.96

Inference: The family has sufficient liquid funds to immediately pay of any current
liabilities.

ii. Month’s Living Expenses Covered Ratio (LECR)

Here,

Monetary assets = Rs. 22,50,000

Living expenses (monthly) = Rs. 55,700 per month (Medical+ household+ education + other
expenses)
So, LECR = 22,50,000/55,700 = 40.39 months
Inference: The family has more than sufficient liquid assets to spend for availing their
current way of living for 40.39 months, or 2.5 years, using their current value of cash and
bank balance.
iii. Debt Ratio (DR)

Here,

Total Debt (Liabilities) = Rs. 19,60,000

Total Assets = Rs. 1,02,42,000

So, DR = 0.1913

Inference: The family has sufficient funds in the form of assets to pay off all the liabilities
and still retain more than 50% assets in hand or invested.

iv. Long term Debt Coverage Ratio (LDCR)

Here,

Total income available for living expenses = Rs. 2,50,000

Total long term debt payments = Rs. 10,500

So, LDCR = 23.8

Inference: The family has sufficient annual income available for expenses to overpower the
annual long term debt payments.

v. Savings Ratio (SR)

Here,
Income available for savings and investments = Rs. 78,250

Income available for living expenditure = Rs. 2,50,000

So, SR = 0.313

Inference: The family has an effective savings ratio.

Goals and objectives:

Mr. Rajeev’s has very rich asset background which majorly includes land in many various
cities of Madhya Pradesh.

Goals

1. Buying a house
2. Planning for Tanay’s graduation, post-graduation and wedding

Objectives:

 Investing and creating provision for above goals

 Creating enough funds for retirement
 Want to create high level of savings for children

Plan 1- Buying a house

For most Indians, a house is likely to be their largest investment. And, as the urban
population grows, purchasing a home in a large city, which is where the majority of
employment are likely to be, has gotten more difficult—the primary barrier being cost.

It's tough to estimate a property's worth. Mr. Rajeev desires to by his house in posh location
of Delhi which will cost him around Rs. 75 lakhs to 1.5 crore. To accumulate the desired
amount, he would have to take the loan from a bank with decent interest rate.

Plan 2 – Planning for Tanay’s graduation, post-graduation and wedding

Tanay’s parents have set a goal of Rs 60 lakh for his graduation, post-graduation, and
marriage. Because they decided to plan investments for their future early on, these are now
their long-term goals, which they can hope to achieve more readily now than if they had
waited a few years.

Retirement plan

Mr. Rajeev’s plan is to retire after 22 years. From the enquiry, we came to know that the
estimated expenditure after retirement will be around Rs.45500 per month which is the
present value.

Amount to be received on retirement

PPF = Rs. 36 lakhs

How to utilize the present savings

The saving is around Rs. 171,750 per month out of which they can set aside Rs. 50,000 in
their bank savings account to meet the regular expenses. The remaining amount should be
invested.

Recommendation to Mr. Rajeev

Mr. Rajeev wants to buy a house which has huge cost so he needs to plan for it and start
investing so that the desired returns could be generated in the coming future of 4-5 years.

Also, he needs to needs to plan for his retirement and start investing into insurances and
policies that provide returns in the coming future of 26 years.

Also, he needs to look more for fixed deposits that can help him in later stage of his life.

Over the long term, the return on investment for the child should be able to outperform
inflation in terms of their child's education/marriage expenses. In this regard, the Sukanya
Samridhi scheme currently does not fit well in their investment portfolio, as well as in terms
of liquidity and flexibility for periodic rebalancing in the coming years.

In terms of direct stock investments, Rajeev will need to review the individual equity shares
he owns on a frequent basis. In the event of a short-term purchase or sale, he should consider
the taxation and expense implications. He should also use these for the family's long-term
goals, making sure to exit each particular investment at the correct time/price well before the
target year.