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
and Varnika, aged 3 years. They have approached 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 re
against rising expenses. Reva earns an annual salary of Rs. 6,00,000 and her salary is expected to grow
working till 60 years of age. Their monthly household expenses are Rs. 35,000, this excludes any EMI on loa

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 (contributio
that of employee's contribution. The rate of return on PF is assumed to remain 6% p.a all through out. Rev

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). Th
4,00,000 per annum, such cost is escalating at 10% p.a. Admission to Engineering will be available on Vare

2. Hemant also plans to send his son to United States for his Masters, immediately on completion of grad
and others) will amount to Rs. 20,00,000 (today's cost). Such cost is escalating at 8.75% p.a. Such corpus to

3. The couple wishes to make Varnika, a dentist. She will be sent to the best of the institution for pursuing
years) (today's cost), such cost is escalating at 10% p.a. Her medical admission will happen when she turns

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 sta
expenses. Such investments will be made for the next 10 years. Education and Masters expenses will be d
mutual funds. Such investments to be made for the next 13 years. Assume all annuities of expenses in due
SIP that he needs to make in Equity and Balanced mutual funds?

b) To meet Varenya’s marriage goal as desired, Hemant will start investing in PPF account from 1st of nex
invest Rs. 140,000 p.a. Thereafter he will increase his investment to maximum permissible limit. This amo
investments by Rs. 40,000 p.a. till the initial maturity (investment done in deferred mode for the said perio
till Varenya’s marriage. To meet Varnika’s marriage goal as desired, Reva will start investing in PPF accoun
six year. She will invest Rs. 130,000 p.a. Thereafter she will increase her investment to maximum permissib
will then reduce her investments by Rs. 5,000 till initial maturity and will follow the same discipline in the
Reva’s PPF maturity proceeds after the 1st extension will be used for Varnika’s marriage and will be inves
Surplus/Deficit amount, in each case, to meet the marriage cost. PPF gives a return of 7.1% for the first six
and by 0.28% for remaining tenure of investment.

c) In addition to their retirement corpus, as proposed, Hemant and Reva wish to gift Rs. 40 lakhs to each o
of gift and charity are given at then cost. Due to their family medical history, the couple also wants to
Hemant’s age of 70 years. What will be the required corpus, if the same is drawn from an instrument
effective Rate / APR wherever needed. How much should he invest from today (on annual basis) in an
corpus? Assume due mode.

Solution:
ars, is a software engineer and works with ‘Easy Solutions Private Ltd’. The couple has 2 children, Varenya, aged 8 years,
in financial advise.

iness. He expects his income to remain steady in the future years, as any growth in income, if any, will get compensated
d her salary is expected to grow at 5% p.a. She plans to retire from her job at age 55, whereas Hemant will continue
5,000, this excludes any EMI on loans and insurance premiums paid.

ovident Fund account (contribution is made in lumpsum at the end of the year). Employer's contribution is equivalent to
emain 6% p.a all through out. Reva’s PF account showed 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.
gineering will be available on Varenya achieving 18 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
ating at 8.75% p.a. Such corpus to be drawn from debt mutual funds.

est of the institution for pursuing her education. The cost of pursuing medical education is Rs. 5,00,000 per annum (for 5
ission will happen when she turns 18. Such corpus 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
etirement household expenses, inflation adjusted till his lifetime and 65% of then expenses till Reva’s lifetime.
 ldren, you advise Hemant to start investing in Equity mutual fund through SIP for Varenya’s education and Master’s
on and Masters expenses will be drawn from debt mutual funds. For Varnika, Hemant will invest through SIP in Balanced
me all annuities of expenses in due mode and investments to be made on the 1st of every month. What is the amount of

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
ximum permissible limit. This amount will be invested at the end of each year for next 6 years. He will then reduce his
deferred mode for the said period). The maturity proceeds received from PPF will then be invested in Debt mutual fund,
will start investing in PPF account from 1st of next month. Such investments will be done on an annual basis for the first
nvestment to maximum permissible limit. This amount will be invested at the end of each year for the next 6 years. She
follow the same discipline in the 1st block after the initial maturity (investment for the said period done in due mode).
rnika’s marriage and will be invested in Debt mutual fund till the amount is required for intended purpose. Find out the
es a return of 7.1% for the first six years, 6.90% p.a. for the next six years. PPF rate then subsides by 0.32% for next 3 years

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
history, the couple also wants to provide an additional Rs. 12,000 per month (current cost) towards medical care after
me is drawn from an instrument yielding 6.85% p.a. Assume due mode. Do not annualize the expenses. Use Monthly
om today (on annual basis) in an instrument yielding a return of 13.25% p.a., in order to meet the desired retirement
 30 Marks

arenya, aged 8 years,

will get compensated

Hemant will continue

ution is equivalent to
of today.

college is around Rs.

mutual funds.

(for education, travel

000 per annum (for 5

s lifetime.
ucation and Master’s
ough SIP in Balanced
What is the amount of

first six years. He will

will then reduce his
in Debt mutual fund,
ual basis for the first
the next 6 years. She
done in due mode).
urpose. Find out the
.32% for next 3 years

70 years. The values

ds medical care after
penses. Use Monthly
e desired retirement
 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 outsta
existing financial assets. Such combined corpus would be invested in a 8% p.a. return instrument to sust
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 t
the mortgage outstanding on the existing house from the sales proceeds. Further, of the remaining amou
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
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;

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
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:
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 should

e achieved