Q. 1 Mr.

Hemant (Reference Date: 31st March, 2022)

Hemant, aged 36 years, runs a garment shop. His wife Reva, aged 34 years, is a software engineer and wo
you for pursuing certain financial advise.

Hemant earns net income (post tax) of around Rs. 8,00,000 from his business. He expects his income to
salary of Rs. 6,00,000 and her salary is expected to grow at 5% p.a. She plans to retire from her job at age 5
loans and insurance premiums paid.

Couple's current investments include

Investments Amount (Rs.)
Cash in hand 65,000
Cash at Savings Bank Account 140,000
Gold (Jewellery and Bullion) 1,300,000
Investment in equity shares (Current market
1,500,000
value)
The employer deducts 10% of Reva’s total salary and deposits in the Provident Fund account (contribution
on PF is assumed to remain 6% p.a all through out. Reva’s PF account showed an accumulated balance of R

Unit Linked Insurance Plan for a sum assured of Rs. 8,00,000. Annual premium paid Rs. 55,000. Policy taken

Financial Goals:
1. Hemant wants his son Varenya to pursue Engineering and become a Data Analyst (4 years course). The
p.a. Admission to Engineering will be available on Varenya achieving 18 years of age. Such corpus to be dr

2. Hemant also plans to send his son to United States for his Masters, immediately on completion of grad
cost). Such cost is escalating at 8.75% p.a. Such corpus to be drawn from debt mutual funds.

3. The couple wishes to make Varnika, a dentist. She will be sent to the best of the institution for pursuin
10% p.a. Her medical admission will happen when she turns 18. Such corpus to be drawn from debt mutua

4. Varenya will be married at age 28. His marriage expenses to amount Rs. 15 lakhs in present terms. Such
5. The couple plan to throw a lavish cruise wedding party for Varnika’s marriage at age 28. It is expected to
6. Make a family trip to Europe, which in present times would cost him Rs. 7.5 lakhs
7. Retirement corpus at Hemant’s age of 60 years to sustain 70% of pre-retirement household expenses, in

Assumptions regarding gross returns in various asset classes:

Equity oriented Mutual Funds 12.00% p.a.
Balanced Mutual Funds 9.00% p.a.
Debt oriented Mutual Funds 7.00% p.a.
PPF account rate of interest 7.10% p.a.
Inflation Rate 4.00% p.a.
 Life Parameters:
Life expectancy of Mr. Hemant 75 years
Life expectancy of Ms Reva 80 years

Questions:

a) To fulfil the goals of education and Masters education for their children, you advise Hemant to start inv
years. Education and Masters expenses will be drawn from debt mutual funds. For Varnika, Hemant will in
mode and investments to be made on the 1st of every month. What is the amount of SIP that he needs to

b) To meet Varenya’s marriage goal as desired, Hemant will start investing in PPF account from 1st of nex
his investment to maximum permissible limit. This amount will be invested at the end of each year for ne
period). The maturity proceeds received from PPF will then be invested in Debt mutual fund, till Varenya’s
will be done on an annual basis for the first six year. She will invest Rs. 130,000 p.a. Thereafter she will incre
reduce her investments by Rs. 5,000 till initial maturity and will follow the same discipline in the 1st block
used for Varnika’s marriage and will be invested in Debt mutual fund till the amount is required for intende
6.90% p.a. for the next six years. PPF rate then subsides by 0.32% for next 3 years and by 0.28% for remaini

c) In addition to their retirement corpus, as proposed, Hemant and Reva wish to gift Rs. 40 lakhs to each o
their family medical history, the couple also wants to provide an additional Rs. 12,000 per month (curren
yielding 6.85% p.a. Assume due mode. Do not annualize the expenses. Use Monthly effective Rate / APR w
meet the desired retirement corpus? Assume due mode.

Solution:

current age:
hemant 36
reva 34
varneya 8
varnika 3

a)
vernayas education
current cost of college ₹ 400,000.00
fv of college ₹ 1,037,496.98
pv of college ₹ 4,327,805.29
 current cost of masters ₹ 2,000,000.00
fv of masters ₹ 6,472,017.97
pv of masters at 20 ₹ 13,049,886.70
pv of masters at 18 ₹ 9,955,696.08
total cost of verneyas education at age 18 ₹ 14,283,501.37
sip ₹ 63,755.42

varnikas education
current cost of education ₹ 500,000.00
fv of education cost ₹ 2,088,624.08
pv of education at age 18 ₹ 10,636,503.34
sip ₹ 42,417.57

b)

current cost of verneyas marriage ₹ 1,500,000.00

age of marriage 28
fv of marriage ₹ 5,804,526.69

first 6 years
investment ₹ 140,000.00
period 6
fv of investment ₹ 1,075,271.16

for next 6 years

investment ₹ 150,000.00
period 6
fv of investment ₹ 1,070,292.78

for next 3 years

year 1
investment ₹ 110,000.00
fv of investment ₹ 110,000.00

year 2
investment ₹ 70,000.00
fv of investment ₹ 70,000.00

year 3
investment ₹ 30,000.00
fv of investment ₹ 30,000.00

ppf at maturity ₹ 2,911,648.20

fv of ppf ₹ 4,083,737.22
ars, is a software engineer and works with ‘Easy Solutions Private Ltd’. The couple has 2 children, Varenya, aged 8 years, and

siness. He expects his income to remain steady in the future years, as any growth in income, if any, will get compensated
lans to retire from her job at age 55, whereas Hemant will continue working till 60 years of age. Their monthly household ex

vident Fund account (contribution is made in lumpsum at the end of the year). Employer's contribution is equivalent to tha
owed an accumulated balance of Rs. 4,50,000 as of today.

mium paid Rs. 55,000. Policy taken on 1st April 2009.

Data Analyst (4 years course). The present cost of education for doing Engineering from reputed college is around Rs. 4,00
years of age. Such corpus to be drawn from debt mutual funds.

mmediately on completion of graduation. The Masters will be of 2 years and the total cost required (for education, travel an
debt mutual funds.

best of the institution for pursuing her education. The cost of pursuing medical education is Rs. 5,00,000 per annum (for 5
pus to be drawn from debt mutual funds.

s. 15 lakhs in present terms. Such cost escalates by 7% p.a.

arriage at age 28. It is expected to cost around Rs. 80 lakhs at the time of her marriage.
s. 7.5 lakhs
retirement household expenses, inflation adjusted till his lifetime and 65% of then expenses till Reva’s lifetime.
en, you advise Hemant to start investing in Equity mutual fund through SIP for Varenya’s education and Master’s expenses.
funds. For Varnika, Hemant will invest through SIP in Balanced mutual funds. Such investments to be made for the next 13
he amount of SIP that he needs to make in Equity and Balanced mutual funds?

ng in PPF account from 1st of next month. Such investment will be done on an annual basis for the first six years. He will in
ted at the end of each year for next 6 years. He will then reduce his investments by Rs. 40,000 p.a. till the initial maturity (i
n Debt mutual fund, till Varenya’s marriage. To meet Varnika’s marriage goal as desired, Reva will start investing in PPF acco
30,000 p.a. Thereafter she will increase her investment to maximum permissible limit. This amount will be invested at the end
e same discipline in the 1st block after the initial maturity (investment for the said period done in due mode). Reva’s PPF m
the amount is required for intended purpose. Find out the Surplus/Deficit amount, in each case, to meet the marriage cost. P
t 3 years and by 0.28% for remaining tenure of investment.

wish to gift Rs. 40 lakhs to each of their children and give Rs. 80 lakhs as charity at Hemant’s age of 70 years. The values o
onal Rs. 12,000 per month (current cost) towards medical care after Hemant’s age of 70 years. What will be the required co
Use Monthly effective Rate / APR wherever needed. How much should he invest from today (on annual basis) in an instrum

yrs 60 yrs
yrs 55 yrs
yrs
yrs
p.a.

first 6 years 0.071 p.a.

yrs next 6 years 0.069 p.a.
next 3 years 0.0032 p.a.
remaining 0.0028 p.a.

p.a.
yrs
Annuity1

p.a. Annuity1 ₹ 1,075,271.16

yrs fv of annuity 1 ₹ 1,604,664.44
annuity2 ₹ 2,674,957.22

annuity2 ₹ 2,674,957.22
fv of annuity2 ₹ 2,683,517.09
annuity3 ₹ 2,793,517.09

annuity3 ₹ 2,793,517.09
fv of annuity3 ₹ 2,802,456.34
annuity4 ₹ 2,872,456.34

annuity4 ₹ 2,872,456.34
fv of annuity 4 ₹ 2,881,648.20
annuity5 ₹ 2,911,648.20
 30 Marks

arenya, aged 8 years, and Varnika, aged 3 years. They have approached

y, will get compensated against rising expenses. Reva earns an annual

r monthly household expenses are Rs. 35,000, this excludes any EMI on

tion is equivalent to that of employee's contribution. The rate of return

ollege is around Rs. 4,00,000 per annum, such cost is escalating at 10%

(for education, travel and others) will amount to Rs. 20,00,000 (today's

00,000 per annum (for 5 years) (today's cost), such cost is escalating at

’s lifetime.
 and Master’s expenses. Such investments will be made for the next 10
be made for the next 13 years. Assume all annuities of expenses in due

first six years. He will invest Rs. 140,000 p.a. Thereafter he will increase
till the initial maturity (investment done in deferred mode for the said
tart investing in PPF account from 1st of next month. Such investments
ill be invested at the end of each year for the next 6 years. She will then
ue mode). Reva’s PPF maturity proceeds after the 1st extension will be
meet the marriage cost. PPF gives a return of 7.1% for the first six years,

of 70 years. The values of gift and charity are given at then cost. Due to
t will be the required corpus, if the same is drawn from an instrument
nual basis) in an instrument yielding a return of 13.25% p.a., in order to
then cost of varnikas wedding ₹ 8,000,000.00

first 6 years
investment ₹ 130,000.00 p.a.
fv of investment ₹ 998,466.08 Annuity1

next 6 years Annuity1

investment ₹ 150,000.00 p.a. fv of annuity1
fv of investment ₹ 1,070,292.78 annuity2

next 3 years
investment ₹ 145,000.00 p.a. annuity2
fv of investment ₹ 436,393.48 fv of annuity2
annuity3

next 5 years
investment ₹ 145,000.00 p.a. annuity3
fv of investment ₹ 729,071.38 fv of annuity3
annuity4

ppf at maturity ₹ 3,792,998.19

fv of ppf at maturity ₹ 5,319,876.17
 ₹ 998,466.08
₹ 1,490,045.55
₹ 2,560,338.33

₹ 2,560,338.33
₹ 2,584,996.32
₹ 3,021,389.80

₹ 3,021,389.80
₹ 3,063,926.80
₹ 3,792,998.19
 Q. 2 Answer any 2 out of 3 questions

a) Mr. Varun’s ideal life cover has to be estimated which in case of any exigency will first repay the outstan
existing financial assets. Such combined corpus would be invested in a 8% p.a. return instrument to susta
professional course of his children. The living expenses need to be taken as inflation-adjusted to the exte
and 60% for the subsequent 30 years. What should be this ideal cover? Household expenses are Rs. 40,00
required at their respective age of 18 years, such expenses are needed for 4 years. Such cost is escalating
(1 year old). Inflation is 5% p.a. Assume due mode. Use Monthly Effective Rate / APR wherever needed.
Liabilities valued as of today.

Particulars Amount
Assets:
House (Current Market Value) Rs. 5 crore
PPF 350,000
Jewellery 1,250,000
Demat Account 825,000
Equity Mutual Schemes 625,000
FD (Principal) 500,000
Savings 85,000

Liabilities
Home Loan (Principal outstanding) 17,00,000
Personal Loan (Principal outstanding) 560,000

b) Dhruv wants to buy a house of his dreams after 8-years. The house costs Rs. 2.5 crores today. He wishes to
the mortgage outstanding on the existing house from the sales proceeds. Further, of the remaining amoun
any costs towards registration, transfers and interiors of the house. Dhruv had bought the existing house
years at an interest rate of 8% p.a., this rate is pegged at 1.5% above the RBI's Repo Rate for the remainin
be maintained by RBI over the next 8 years. Existing house is currently valued at Rs. 1.25 crores. He wants t
dreams. Real Estate appreciates at 8% p.a., and existing house is expected to appreciate at 6% p.a. Assume

c) What is Financial Planning? Explain the broad areas of Financial Planning?

Solution:
 2*10 Marks = 20 Marks

will first repay the outstanding loans and the remaining would be invested along with his
return instrument to sustain the family’s living expenses and the specific financial goals of
ation-adjusted to the extent of 80% of their present household expenses for next 25 years
old expenses are Rs. 40,000 pm. Professional course fees in current terms is Rs. 400,000 p.a.
rs. Such cost is escalating at 9% p.a. He has 2 children, Aarmaan (4 years old) and Mansher
/ APR wherever needed. Annualize monthly expenses. Mr. Varun has following Assets &

crores today. He wishes to buy this house after selling his existing house. He will first repay
r, of the remaining amount, he would set aside an amount of Rs. 75 lakhs towards meeting
bought the existing house 5 years ago by availing a loan of Rs. 50 lakhs for a tenure of 18
epo Rate for the remaining tenure of the loan. You expect average RBI Repo Rate of 6% to
Rs. 1.25 crores. He wants to know the amount of financing required to buy the house of his
reciate at 6% p.a. Assume EMI paid in deffered mode.
ks = 20 Marks
Q1 Solution to (a)

Equity Fund returns

Debt Fund returns
Engineering inflation
Masters inflation
Varenya's current age
Varnika's current age
Age in which Varenya will get admission in Engineering
Age in which Varenya will get admission in Masters
Age in which Varnika will get admission in Dentist

Inflation adjusted Engineering cost

PV of Eng. Cost @ t+10

Inflation adjusted cost of Masters

PV of Masters @ t+14
PV of Masters @ t+10
Total cost for Varenya

Inflation adjusted Dentist cost

PV of Dentist @ t+15
PV @ t+13

SIP in Equity MF
SIP in Balanced MF

Solution to (b)

Varenya current age (in years)

PPF tenure (in years)
Varenya marriage age (in years)
No of yrs for marriage (in years)
Balance PPF account after 6 years
Balance PPF account after next 6 years (i.e. total 12 years)
Balance PPF account after next 3 years (i.e. total 15 years)
Value of Debt MFs after 5-yrs (invested the PPF balance on its maturity)
Marriage cost at Varenya's 28 years age
Shortfall

Varnika's current age (in years)

PPF tenure (in years)
Varnika marriage age (in years)
No of yrs for marriage (in years)
Balance in PPF Accoun after 1st 6-years
Balance in PPF Accoun after next 6-years (i.e. total 12 years)
Balance in PPF Accoun after next 3-years (i.e. total 15 years)
Balance in PPF Accoun after 5-years extension (i.e. total 20 years)
Value of Debt MFs after 5-yrs (invested the PPF balance on its maturity)
Marriage cost
Surplus

Solution to (c)

Calculation of Living Expenses from Hemant's age 60 to 70

Inflation rate per month
Monthly expenses
No of months for expenses to be inflated
Inflation Adjusted expenses post retirement
PV of LE from 60 to 70 @ Hemant's age of 60 years

PV of Gifts and Charity @ Hemant's age of 60 years

Inflation adjusted living expenses at Hemant's age of 70 years

Inflation adjusted medical expenses at Hemant's age of 70 years
Total Annuity of expenses

PV of LE from 70 to 75 @ Hemant's age of 70 years

PV of LE from 70 to 75 @ Hemant's age of 60 years

Inflation adjusted total expenses for Reva @ Hemant's age of 75 years

PV of LE + Med Cost from 73 to 80 @ Hemant's age of 75 years
PV of LE + Med Cost from 73 to 80 @ Hemant's age of 60 years

Total Retirement Corpus

Amount to be saved from today

 12%
7%
10%
8.75%
8
3
18 10
22
18

1,037,496.98 ₹1,037,496.98
4,327,805.29 10-14@10

6,472,017.97
13,049,886.70 14-16@14 10-12*10
9,955,696.08 ₹9,955,696.08 14-16@10
14,283,501.37

2,088,624.08 cost at 18
11,045,365.99 18-23@18 3
9,647,450.42 18-23@16 16

63,755.42
33,417.85

8
15
28
28
1,075,271
2,674,957
3,590,691
5,036,130
5,804,527
768,397

3
15
28
25
998,466
2,560,338
 3,594,533
5,752,846
8,068,663
8,000,000
68,663

Today Retire Medical

Hemant 36 60 70
0.33% Reva 34 58 68
35,000
288
62,801 cost at 60 60-75@60
6,610,776 (i) 60-70@60

8,248,495 (ii)

92,961 cost at 70 70-75@70

45,532
138,493 total cost at 70

7,781,161 70-75@70
4,011,429 (iii) 70-75@60

109,523 cost at 75 73
8,391,287 73-80@73
3,106,066 (iv) 73-80@58

21,976,767

136,684
LE for H LE for R
75 82
73 80
Q2 Solution to (a)

Part A: PV of Living Expenses

Part A1: Annuity 1 from t to t+25
Annuity 1 is 80% of Current House Hold Expenses (pa)
Expenses from t to t+25
Need these expenses for 25 yrs
Investment RoR
Inflation
Real RoR
PV of LE of Annuity 1 @ t

Part A2: Annuity 2 from t+25 to t+55

Expenses from t+25 to t+55
Need these expenses for 30 yrs
Real RoR
PV of LE of Annuity 2 @ t+25
PV of Annuity 2 @ t

Part B: PV of Higher Education

Part B1: PV of HE cost for Aarmaan
Current age of Aarmaan
Current Cost of Education
Education Cost Esclation
Amount needed at 18 years
Needs this money for 4yrs
Real RoR
PV of Expenses at age 18 years
PV of expenses at Aarmaan's age 4

Part B2: PV of HE cost for Mansher

Current age of Mansher
Current Cost of Education
Education Cost Esclation
Amount needed at 18 years
Needs this money for 4yrs
Real RoR
PV of Expenses at age 18 years
PV of expenses at Mansher's 1 yr

Part C: Calculating O/s Liabilitis

Home Loan
Personal Loan
Cover amount

Part D: Cover needed after accounting for liquidation of Finanacial Assets

PPF
Equity MF
Demat Account
FD
Savings
Total Financial Assets

Ideal Cover of Varun (in Rs.)

Solution to (b)

Value of existing house

Cost of dream house today
Amount set aside registration, transfer & buying, furniture & fixture etc.

Loan availed
loan term (in years)
Interest Rate on loan
Avg. RBI repo rate for the next 8 years
Floating Interest Rate for the next 8 years

EMI
Outstanding loan amount (today)
New EMI after 5-years
Outstanding loan amount after 8 years

Growth rate in existing house value

Growth rate in dream house value

Value of existing house after 8 yrs

Balance after loan repayments

Value of dream house after 8 yrs

Amount available to purchase his dream house

Financing required

Solution to (c)

Financial Planning is all about preparing a sequence of action steps to achieve a specific financial goal.
• A financial plan is a roadmap to achieve your life's financial goals.
• It is like a map, where you can always see how much you have progressed towards your projected financial goal a
• Financial planning is important because it guides and controls the financial decision making process.
• While making a financial plan, objectives and constraints of individual are included so it represents the long term
• Planning is a dynamic process so if there is are any changes in an individual's circumstances they can be incorpor
have SMART financial goals in order to meet those goals within a specific time horizon, while following a disciplined

Financial goals should be;

State exactly what is to be done with the Specific money involved
Rupee worth of the Goal
Attainable: Determine How it can be achieved Attainable. Depends on individual’s budget
should be within the individual's reach
Time Bound: Determine the time duration within which the goal is to be achieved
• While making a financial plan, objectives and constraints of individual are included so it represents the long term
• Planning is a dynamic process so if there is are any changes in an individual's circumstances they can be incorpor
have SMART financial goals in order to meet those goals within a specific time horizon, while following a disciplined

Financial goals should be;

State exactly what is to be done with the Specific money involved
Rupee worth of the Goal
Attainable: Determine How it can be achieved Attainable. Depends on individual’s budget
should be within the individual's reach
Time Bound: Determine the time duration within which the goal is to be achieved
 480,000 20
384,000 80% 20-45@20
25 60% 45
8.00% 45-75@45
5.00% 45-75@20
2.86%
6,988,468 ₹6,988,468.10

975,270 ₹975,270.22 45
30
2.86%
20,029,991
2,924,737

4
400,000
9%
1,336,691
4
-0.92%
5,421,483
1,845,804

1
400,000
9%
1,731,053
4
-0.92%
7,020,978
1,897,552

1,700,000
560,000
15,916,562

350,000
 625,000
825,000
500,000
85,000
2,385,000

13,531,562

12,500,000
25,000,000
7,500,000

5,000,000
18
8.00%
6.00%
7.50%

43,748
4,234,753
42,575
2,124,716

6.00%
8.00%

19,923,101
17,798,385

46,273,255

10,298,385
35,974,871

achieve a specific financial goal.

essed towards your projected financial goal and how far you are from your destination.
ancial decision making process.
l are included so it represents the long term objective of the individual.
vidual's circumstances they can be incorporated into the financial plan. One needs to
fic time horizon, while following a disciplined investment approach with a clear future goal in mind.

Specific:
Measurable: Write the

individual’s budget Realistic: Goal

e achieved
l are included so it represents the long term objective of the individual.
vidual's circumstances they can be incorporated into the financial plan. One needs to
fic time horizon, while following a disciplined investment approach with a clear future goal in mind.

Specific:
Measurable: Write the

individual’s budget Realistic: Goal

e achieved