Contents

Particulars Page No
Summary 2
Your Profile 3
Financial Goals 4
Monthly Household Budget & Net Worth 5
Assumptions 6
Life Insurance Coverage Need 7
Health Insurance Need & Assets Protection Need 8
Rani's Education Goal 9
Bigger House Purchase Goal 10
Rahul’s Education Goal 11
Retirement Planning 12
Current Portfolio 13
Ideal Asset Allocation 14
Cash Flow Statement for the year 2006 & 2007 15
Cash Flow Statement for the year 2008 & 2009 16
Cash Flow Statement for the year 20010 17
Disclaimer 18
Investment Risks 19
Action Plan 20

1
 Summary

The objective of the plan is to help you understand your financial situation and guide you on the path to
financial independence.

We have considered a number of alternatives before finalizing the recommendations and believe that the
recommended strategy will help you fulfill your needs and achieve your financial goals in a disciplined and
systematic manner.

We have used techniques and concepts proven over years in the field of investments while preparing the
plan and have charted a road map for you to reach the milestones in life.

We have recommended you to increase your life insurance cover, reduce cash balances and start investing
systematically for retirement and wealth creation.

We believe that our recommendations have the potential to help you:

• incorporate discipline in your savings and investment habits;
• create and accumulate wealth over your working years;
• maintain standard of living after retirement;
• provide financial security for your family in case of an unexpected event;
• restructure your portfolio according to your risk tolerance and time horizon; and
• achieve your financial goals in a disciplined and comfortable manner.

2
 Your Profile

Mr. Ravi, 45, you are a Resident Indian, and working as Territory Manager with a telecom company in
Delhi. Your wife Mrs. Preeti, 40, is a housewife. You have two children- daughter Rani, 17 and son Rahul,
15; both studying.

You have sufficient regular inflows to meet all household expenses, to pay loan EMIs and still saving a
portion of the income.

At this juncture you are into the accumulation phase, where the maximum investments should be aimed at
your need to create and accumulate wealth over your working years.

You have been investing wisely and your portfolio looks well diversified.

Your main concerns are- children’s higher education and buying a bigger house within next 3 to 5years and
planning for retirement.

3
 Financial Goals

You have the following financial goals to be achieved through financial planning:

1. To provide for your daughter’s higher education after 3 years. Estimated cost Rs. 10,00,000 (in today’s
term).
2. To buy a bigger house for Rs. 40,00,000 (today’s cost) after 4 years.
3. To provide for your son’s higher education 5 years down the line. Estimated cost Rs. 10,00,000 (in
today’s term). Rs. 5,00,000 (future value) to be financed through education loan.
4. To retire at age 60, with a regular income of Rs. 15,000 p.m. (in today’s term).

4
 Monthly Household Budget

Monthly Income (Rs.) (Rs.)

Income from Salary 40000
40000

Monthly Expenses
Household expenses including insurance premium 20000
House loan EMIs 5000
25000

Savings per month 15000

Net Worth

Assets

Particulars Amount (Rs)

House Property
1 2000000
Jewellery
2 200000
Investments
3 2704550
Retirement Benefits
4 900000
TOTAL
5804550

Liabilities
Particulars Amount (Rs)

1. House Loan
240000
TOTAL
240000
NETWORTH
5564550

5
 Assumptions

Calculations and projections in the plan are based on the following assumptions:

• Rate of return on debt investments is expected to be 6% p.a. net of tax.

• Rate of growth of equity and real estate investments is expected to be 12% p.a. and 10% p.a.
respectively.
• Inflation rate has been assumed to be 5%.
• Household expenses and education expenses are expected to be increasing at the rate of inflation year on
year.
• Your salary income is expected to increase at the rate of 7% p.a. net of tax till retirement.

Risk Management-Life Insurance Coverage Need

6
 For Mr. Ravi Sen

Particulars Amount (Rs)

Life Insurance Coverage Needed 4200000
Coverage Currently Held on Life 2000000
Additional Cover Needed 2200000

We have computed insurance coverage requirement for you on the basis of two mechanisms. The first
mechanism looks at a scenario of meeting the household expenses that will be incurred by your family and
meeting other financial goals and liabilities.

The second mechanism looks at a scenario of capitalizing your total disposable income to your family in
your working life.

The lesser of the two is the minimum required cover on your life as on date.

On insuring yourself for this amount, you will safeguard your family against any event that could impair
their chances of meeting the regular household expenses, currently provided to by your income and ensure
that liabilities and goals are met on time even if you are not there.

The insurance requirement has been computed taking into consideration some assumptions regarding rate of
interest and inflation over a period of time which we believe are reasonable according to your profile. It is
noteworthy that the factors are an assumptive one, and the actual returns on the post-event portfolio may not
be in exact correlation to the assumed return.

However, from a risk protection point of view, this amount seems to be a close approximation, at this point
in time.

We recommend you buy a term plan with Sum Assured of Rs. 2200000; premium for which will be
approximately Rs.8000 p.a.

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 Health Insurance Need

It is the most crucial need of an individual of your age. We understand that the employer has provided you
with sufficient health insurance cover; still we would like to check the terms and conditions of the policy
and assess its suitability to you.

Asset Protection Need

It is also imperative that individuals insure their assets against a possible loss that might otherwise hamper
other goals due to the costs involved in replacing those assets. This is relevant since the cost of
replacement/repair could impair other financial goals that you would have set for you. Hence, if such risk
can be hedged by paying a low sum of money, it is advisable to be done.

We appreciate that you have already got your house and contents insured. Still we would like to check the
terms and conditions of the policy.

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 Rani’s Education Goal

Based on the information, we understand that you expect to incur an expense of Rs 10,000,00 (in today’s
term) three years down the line (at the end of year 2008) on your daughter’s education. Further we also
understand that you have not made any specific allocation for this goal.

Assuming an inflation rate of 5% for education cost, future value of this goal will be Rs. 11,57,625 after 3
years.

Funding of the goal:

1. PPF A/cs of both of you opened 12 years before will be maturing at the end of 2008. Assuming a tax
free interest rate of 8%, future value of current balance will be Rs. 4,40,900.
2. Bank FD will be maturing at the end of year 2007, which can be reinvested in floating rate funds for
one-year period. Assuming a net of tax rate of 4.2%, which is the rate in force on the FD, this
investment will fetch you Rs. 8,25,200 at the end of year 2008.

So from these two investments you will collect approximately Rs. 12,66,100 which is more than your
requirement for the daughter’s education goal.

9
 Bigger House Purchase Goal

Based on the information provided by you, we understand that you want to buy a bigger house for Rs
40,00,000 (today’s cost) after four years from now (at the end of year 2009). We also understand that you
have not set aside any amount for the purpose.

From the discussion with you, we understand that you will sell the existing property and the balance
requirement of funds has to be provided for. Value of the existing house property is Rs. 20,00,000.
Therefore goal amount is Rs. 20,00,000 as of today.

Based on the logical assumption that property may appreciate @ 10% in the next four years, future value of
Rs 20,00,000 will be Rs. 29,28,200. This rate may differ based on extrinsic factors. However, we could
keep track of the appreciation rate, should you want an annual review, and change our plan accordingly.

Funding of the goal:

At the end of 4 years, value of investment in Shares and Equity Mutual Funds will rise to approximately Rs.
12,41,500 at an appreciation rate of 12%. NSC will also be maturing at that time for Rs. 1,39,000.

You should pay Rs. 9,28,200 from your own funds and take house loan for Rs. 20,00,000 for 10 years. At
the rate of 7.5%, EMI will be Rs. 23,740, which will be less than 45% of your income (within advisable
limits).

10
 Rahul’s Education Goal

Based on the information, we understand that the cost of higher education of your son will be Rs 10,000,00
(in today’s term) five years down the line (at the end of year 2010). Further we also understand that you
have not made any specific allocation for this goal.

Assuming an inflation rate of 5% for education cost, future value of this goal will be Rs. 12,76,282 after 5
years. Out of this, Rs. 5,00,000 will be arranged by your son through education loan. So you have to make
provision for Rs. 7,76,282 after 5 years.

Funding of the goal:

Your GOI Bonds will be maturing at the end of year 2007. Maturity value will be Rs. 6,06,486. This amount
can further be invested for 3 years in the recommended asset allocation ratio. At the rate of expected return
on portfolio (7.65%), this investment will become Rs. 7,56,500 at the end of year 2010. Other investments
worth Rs. 20,000 can be redeemed to fill the gap.

11
 Retirement Planning

Retirement planning is absolutely essential considering increasing life expectancy and increasing cost of
living due to inflation. We understand that you haven’t yet put in place a proper retirement plan. Except the
compulsory savings in the form of contribution to EPF (current balance Rs. 9,00,000), no specific
investments have been directed to retirement needs.

We understand that you are intended to retire at age 60 and to maintain your life style after retirement, you
need a regular income of Rs. 15,000 p.m. (in today’s terms) till age 80.

15 years from now, you will need Rs. 31184 p.m. to have the purchasing power of today’s Rs. 15,000. To
generate this monthly income increasing at the rate of inflation, you need to have a corpus of Rs. 62,00,000
at retirement.

Funding of the goal:

Taking into consideration the current balance of EPF A/c, to reach the target corpus of Rs. 62,00,000 at
retirement, you need to start with an investment Rs. 7,000 p.m. in the recommended asset allocation and
increase this amount at the rate of 7 % p.a. as your income is expected to increase at the same rate.

12
 Current Portfolio
 Your current portfolio seems to be almost balanced and well diversified across asset classes.
 Current portfolio provides you enough liquidity in case of an emergency. All the investments allow
full redemption or partial withdrawal.
 74% of the portfolio is invested in guaranteed return instruments. Only shares and equity mutual
funds are subject to market risk.
 Weighted average return net of tax on the current portfolio is 7.39% which can be increased to
7.65% by shifting excess amount in s/b a/c to equity and debt investments. Except Bank FD all
investments are giving good returns.
 Apart from Bank FD and NSC all other investments are tax efficient. We understand that Bank FD
and NSC investments would have been made for liquidity and tax saving purposes respectively.

Current Asset Allocation

11%
26%

Equity
Debt
Cash

63%

Current Asset Allocation

Debt Equity Cash Total Yield Weighted Return
Stocks 400000 400000 12% 1.77%
Equity Mutual
Funds 300000 300000 12% 1.33%
GOI Relief Bonds 513471 513471 8.50% 1.61%
Bank FD 729400 729400 4.20% 1.13%
NSC 111679 111679 5.60% 0.23%
PPF 350000 350000 8% 1.04%
S/B A/C 300000 300000 2.45% 0.27%
Total 1704550 700000 300000 2704550 7.39%
63% 26% 11% 100%

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 Ideal Asset Allocation

Recommended Asset Allocation

3%

29%

Equity
Debt
Cash

68%

Based on your risk profile, we believe that Moderate Investment Strategy would best suit your
situation. Hence we have suggested Moderate asset allocation for your profile according to which you
should have 68:29:3 allocations to Debt: Equity: Cash in your portfolio. This could increase your returns
50%
since equity is the driver to relatively higher returns, and has the capability to lift returns on your total
portfolio. Additionally, you have an adequate time for your equity investments to iron out the short-term
volatilities that exist in the equity investment spectrum. It is noteworthy that equities have an inherent risk
attached to them, but in long term, equities have proven to outperform the other asset classes.

On equity, you we expect an average return of around 12% pa in long term. On debt investments, we expect
an average return of 6% pa net of tax. Cash investments will give you 2.45% net of tax.

Considering 68:29:3 allocations to debt, equity and cash, we expect an average return of 7.65% pa on the
consolidated portfolio in long-term.

Recommended Asset Allocation

Debt Equity Cash Total
1840685 788865 75000 2704550
68% 29% 3% 100%
Yield 6% 12% 2.45%
Weighted Return 4.08% 3.50% 0.07% 7.65%

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 Cash Flow Statements for next 5 years

Projected Cash Flow Statement for the year 2006

Inflows
Salary 480000

Total 480000

Outflows
Household Expenses 240000
Insurance Premium 8000
Loan EMI 60000
Investment for Retirement Planning 84000

Total 392000

Surplus/Deficit 88000

Surplus savings should be invested systematically in the recommended asset allocation to create and
accumulate additional wealth.

Projected Cash Flow Statement for the year 2007

Inflows
Salary 513600
Bank FD Maturity 791950
GOI Bonds Maturity 606486
Total 1912036

Outflows
Household Expenses 252000
Insurance Premium 8000
Loan EMI 60000
Investment for Retirement Planning 89880
Reinvestment of maturity proceeds 1398436
Total 1808316

Surplus/Deficit 103720

Maturity proceeds from Bank FD will be invested in Floating Rate Funds which will be redeemed next
year for daughter's education. Maturity proceeds from GOI bonds will be invested in recommended asset
allocation to be utilized for son's education.

Projected Cash Flow Statement for the year 2008

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Inflows
Salary 549552
PPF A/cs 440900
Floating Rate Fund Redemption 825200
Total 1815652

Outflows
Household Expenses 264600
Insurance Premium 8000
Loan EMI 60000
Cost of Daughter's Education 1157625
Investment for Retirement Planning 96172
Total 1586397

Surplus/Deficit 229255

Maturity proceeds from Bank FD invested last year in Floating Rate Funds will be redeemed this year for
daughter's education. Surplus savings should be invested systematically in the recommended asset
allocation to create and accumulate additional wealth.

Projected Cash Flow Statement for the year 2009

Inflows
Salary 588021
NSC Maturity 139290
Sale of Shares & MF Units 700000
Total 1427311

Outflows
Household Expenses 277830
Insurance Premium 8000
Loan EMI 60000
House Purchase 928200
Investment for Retirement Planning 102904
Total 1376934

Surplus/Deficit 50377

Shares and MF Units worth Rs. 7,00,000 will be sold to finance house purchase goal.

Projected Cash Flow Statement for the year 2010

Inflows
Salary 629182
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 Sale of investments 856500

Total 1485682

Outflows
Household Expenses 291722
Insurance Premium 8000
Loan EMI 284880
Cost of Son's Education 776282
Investment for Retirement Planning 110107
Total 1470990

Surplus/Deficit 14692

Investment made from GOI Bonds maturity proceeds in year 2007 Plus Rs. 1,00,000 from other
investments will be redeemed for son's education funding and to cover other expenses.

Disclaimer

The plan is completely based on the information provided by you. If any material information has not been
revealed or is inaccurate, this will have a significant impact on the outcomes of the plan and
recommendations could prove inappropriate for you.

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The recommendations given here are specifically for you only and should not be considered as general
advice for public.

If the recommendations are not implemented within 30 days since the date of the plan, you should not act up
on the recommendations without our consultation as your circumstances or other outside factors could have
changed by that time and any of the recommendations could have become inappropriate.

The plan has been prepared on the bases of certain assumptions stated earlier and as economic, legislative
and corporate factors keep on changing, no guarantee is expressed or implied regarding the income,
expenses, return or portfolio projections.

Rate of return on various asset classes are forecasts only based on our research and will vary in line with
market conditions. Stocks and real estate based investments may, in the short-term, rise or fall in value
beyond your expectations. So these asset classes should be looked as long-term investment avenues.

The recommendations are based on our understanding of the current taxation laws, superannuation schemes
and govt. policies. Future changes in these areas could affect the appropriateness and outcomes of the
recommendations.

Investment Risks

When you invest your money, there are certain risks involved which cannot be avoided because in absence
of risk, there is no return. Therefore, to have realistic expectations from your investments you should
understand the following investment risks:
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Inflation risk
The possibility that the purchasing power of your money may not keep pace with inflation. It may happen
when you choose either not to invest at all or invest insufficiently in growth products and get a negative real
return on your funds. For example, keeping funds in savings bank A/c at the rate of 2.45% pa (net of tax)
which is much lesser than inflation.

Credit risk
The possibility that the institution (borrower) holding your capital (e.g. a debenture issuer) may fail to pay
interest and /or return your capital. Credit risk is very high in case of institutions with low credit ratings.
Govt. of India bonds are free from credit risk. Funds in scheduled banks are guaranteed by Reserve Bank of
India up to Rs.1 lac only.

Liquidity risk
The possibility that you may not be able to readily access your funds or you may have to pay a penalty to
liquidate your funds when you need them because they are invested in illiquid assets. (e.g. real estate and
paintings)

Market risk
The possibility that movements in the market can cause your investment to decrease (as well as increase) in
value. Market risk is very high in case of stocks

Reinvestment risk
The possibility that if you invest in fixed rate investments (e.g. bonds), you may have to reinvest coupons as
well as maturity value at a lower rate of interest if rates decline during the life of that investment.

Interest rate risk

The possibility that an upward movement in interest rates can cause the bond prices to decline. There is an
inverse relationship between interest rates and bond prices.

Risk of concentration
The possibility that if you invest all your capital in one asset class (e.g. stocks), a fall in that market will
adversely affect all of your capital.

Regulatory risk
The possibility that govt. policy changes may affect your financial strategy adversely. (e.g. superannuation
and retirement income policy, taxation laws etc.)

Manager risk
The possibility that the fund manager you will place funds with, primarily based on his good past
performance, may not cater to your expectations over the time frame you have in mind.

Action Plan

1. We would like to stress on the fact that you are, at this juncture, under-insured by about Rs.
22,00,000 and you should look at purchasing an insurance policy to safeguard your family. We
understand that the amount of insurance that you need may seem to you a bit high, but it needs to be
understood that you have, at this point in time, some unfinished obligations to your family.

19
 2. You should have around Rs. 75,000 (3 months household expenses) in liquid form such as in liquid
funds or savings bank A/c. The balance Rs. 2,25,000 in S/B A/c should be invested in equity and
debt instruments as recommended.

3. You must start an SIP of Rs. 7,000 pm (your current investible savings after insurance premium)
with 70:30 allocations to Debt and Equity to fund your retirement target corpus. This investment
should be increased by 7% every year along with the increase in your income,

4. Surplus savings should be invested systematically according to the recommended asset allocation to
create and accumulate additional wealth. An SIP will bring discipline into your savings and investing
habits and will help you create and accumulate wealth without much strain on your wallet. This
investment should take care of your tax saving need also.

5. On the equity side, you should invest in equity mutual funds. On the debt side some portion can be
invested in fixed rate instruments such as PPF, GOI Bonds, PO schemes and some portion should be
invested in market related instruments like Floating rate funds, or mutual fund MIPs which will
provide liquidity along with better returns over savings bank a/c.

**Please note that in order to enable the plan to be effective, it is pertinent to review it
periodically. This would enable a proper check on the plan, as well as, address any issues
that might arise due to change in your goals, financial position, personal circumstances
and other extrinsic factors that affect your plan**

Wishing you financial independence in life!

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