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FINANCIAL PLANNING

FOR

Mr. YOGESH MODY

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Three possible changes

Rate of return

In other words, change the risktakingability

Income/Saving

Earn more OR save more to cover up expenses

LifestyleRationalize expenses i.e. reduce standard of living

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Case Facts.

Age : 44 years Risk profile : Moderate risk

takingability

Total currentannual cash outflow : Rs 5.57 lakh

(incl. HH expenses, insurance commitment) Total currentannual inflow : Rs 21.50 lakh

(incl. Personal, investment income)

Expected annual increase in income : 12 %

Expected retirementage : 60 years

Estimate ofannualized return

onthe portfolio :12%

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PRESENT FINANCIAL

POSITION

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Current status

Direct Equity : Rs. 1.55 crore

Axis Bank shares worth Rs. 1.1 crore.

Mutual Funds:

Equity oriented: 5 lakh

Debt oriented: 20 lakh

Real estate: 1.25 crores.

Fixed Income: Rs. 24 lakh

PPF Rs. 13 lakh

PFRs. 11 lakh

Cash: Rs. 20 lakh(S/B Ac )

Loans: Nil

Insurance: Rs. 24.5 lakh

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Direct Equity

Axis Bank shares : Rs. 1.1 crore

Corpus atthe time of retirement: 8.95 crore.

Other equity: Rs 45 lakh Corpus atthe time of retirement: 3.66 crore.

Total corpus at the time of retirement: Rs 12.61 crore

Assumptions: Equity generates returns of 15% over a long-term.

No addition to direct equitycorpus in the coming years

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Mutual Funds

Present corpus : 2 5 lakh Equity oriented: 5 lakh

Debt oriented: 20 lakh

Corpus at the time of retirement : Rs. 1.13 crore Rate of return on mutual funds :

Equityoriented: 15%

Debt oriented: 9%.

Assumptions: Mutual Fund Corpus remains intact till the retirement time

and all the schemes are growth schemes.

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Provident Fund

Present corpus: Rs. 13 lakh

Rate ofgrowth of corpus: 8.5% per annum

Corpus at the time of retirement: Rs. 2.62 crore

Assumption

Individuals contribution: 12% of salary

Employers contribution: 12% of salary

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Present corpus: Rs. 11 lakh

Rate ofgrowth of corpus: 8.5% per annum

Corpus at the time of retirement: Rs. 37 lakh Assumption

The PPF corpus remains untouched

No additional investment is made in PPF fromhereon

Public Provident Fund

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Assumptions Equityreturns have been estimated at 15% per annum for a longterm.

Fixed income returns have been estimated at 9% per annum for a longterm.

Inflation is estimated at 6% for a longterm.

Effective tax rate is assumed at 25%.

16 f ull workingyears are left.

Life expectancyhas beenassumed at 90 years. Consideringthe return expectation ofthe client, the followingasset

allocation is suggested for pre-retirement stage:

Weightage Expected Return

Equity 50% 15% 12.00%

Fixed Income 50% 9%

Returns based on Asset Allocation

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PROJECTIONS

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CHILDRENS FINANCIAL PLANNING

Purpose

Amount required

(in Rs.)

Time Horizon

(in years)

Amount in today's

terms (in Rs.)

daughterEducation 400,000 5 298,903

daughterMarriage 1,000,000 9 591,898

sonEducation 800,000 8 501,930

sonMarriage 1,200,000 15 500,718

Amount to be

invested every

month

Lumpsum Amount

to be invested

Amount to be

invested every

month

Lumpsum Amount

to be invested

daughterEducation 4,898 226,971 5,783 303,738daughterMarriage 5,184 360,610 7,122 609,243

sonEducation 5,002 323,107 6,608 514,983

sonMarriage 2,402 219,236 4,247 525,411

Total 17486 1129923 23760 1953375

Nominal Amount Real (Inflation-adjusted) Amount

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Net of income

and

expenditure

Corpus

required if

entirely funded

by Debt

Corpus required

if entirely funded

by Floaters

Corpus required for

meeting expenses

for the coming ten

years by debt

orpus requre or

meeting expenses

from the 11th to the

20th year through

debt

orpus requre or

meeting expenses

from the 21st to the

30th year through

debt

Corpus to be

invested in

equity for ten

years

Corpus to be

invested in equity

for twenty years

Total corpus to be

invested in equity

at the time of

retirement

399,655 8,627,627 11,308,242 3,028,484 1,635,083 802,198 2,437,281428,471

-271,731

479,030

514,392

552,236

592,730

636,052

672,391721,949

774,941 6,614,822831,597

892,160

956,890

1,026,063

1,099,975

1,178,940

1,263,290

1,353,383

1,449,5951,552,331 13,129,2091,662,019

1,779,115

1,904,106

2,037,509

2,179,874

2,331,787

2,493,870

2,666,787

2,851,243

Retirement Planning

Rs. 86.27 lakhRs. 54.65 lakh

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Disposable Surplus

Cumul tii l

Sur lus

( l t r s)

Cumul tiisposabl

Corpus ( i

I ome)

Cumu lati eisposable

Corpus

(MIPs)

Cumu lati eisposable

Corpus

(Balanced)

Cumulati e

isposab le

Corpus (E uit )

2, , 2, , 2, , 2, , 2, ,

, , , 2 9, 28 4, ,9 7 5 4, 5, 7 0 4,2 0 2,21 3

6,2 5 1,2 99 6,4 1 2,95 7 6,4 94,6 5 1 6,6 59,7 7 1 6,9 1 1,77 7

8,8 7 8,2 07 9,2 0 0,59 3 9,3 65,1 6 3 9,7 01,1 4 3 10,2 2 2,47 31 1,8 9 5,1 78 12,4 4 7,28 7 1 2,7 31,8 9 2 1 3,3 18,6 3 8 14,2 4 3,91 9

1 5,1 4 3,1 21 16,0 0 6,16 0 1 6,4 55,3 6 7 1 7,3 90,4 9 6 18,8 8 9,13 2

1 8,4 5 3,8 81 19,7 1 9,20 3 2 0,3 84,2 6 5 2 1,7 82,4 6 3 24,0 6 0,22 9

2 2,4 7 7,8 08 24,2 5 2,48 4 2 5,1 94,4 4 3 2 7,1 94,5 0 7 30,5 0 7,00 9

2 7,4 9 9,2 82 29,9 1 6,54 9 3 1,2 11,8 8 5 3 3,9 89,1 6 1 38,6 6 4,34 4

3 2,1 6 9,3 45 35,3 8 0,67 5 3 7,1 17,9 7 2 4 0,8 79,2 8 1 47,3 1 5,20 1

3 8,5 6 6,6 50 42,7 5 0,43 9 4 5,0 35,2 9 9 5 0,0 30,3 7 7 58,7 1 8,14 2

4 5,8 1 3,6 91 51,1 8 9,29 0 5 4,1 52,1 0 8 6 0,6 91,2 3 8 72,2 4 8,98 3

5 4,0 1 0,2 13 60,8 3 4,09 7 6 4,6 29,1 9 5 7 3,0 84,2 7 1 88,2 6 8,72 7

6 3,1 5 3,0 08 71,7 2 3,05 4 7 6,5 31,9 0 6 8 7,3 45,9 8 3 1 07,0 7 8,34 7

7 3,4 6 4,2 09 84,1 2 5,53 3 9 0,1 60,9 5 7 1 0 3,8 60,2 7 4 1 29,2 5 8,24 2

83,83 6,8 4 4 96,97 7, 4 10 4,4 82,9 92 1 21,6 79,97 9 1 54,0 79,24 9

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Conclusion..

Req uirements at retirement: Rs. 86.27 crore if expenses totally financed bydebt and Rs. 1.13

crore if financed byFloaters

Following staggered approach, the corpus req uirement becomesRs. 54.65 lakh

Corpus available at retirement (Total = Rs. 25.11 crore)

Rs. 12.61 crore in Direct Equity

Rs.1.13 crore in Mutual Funds Rs. 2.62 crore in Provident Fund & Rs. 0.37 crore in PPF

Rs.8.38 crore in disposable surplus account ( most

conservative scenario of 100% investment in floaters)

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Recommendations

Post-retirement expenditure can be financed entirelythrough debt or Floaters to avoid anyfluctuations/loss of capital

The core equitycorpus should be given ample time togrow and then transferred to a conservative MIP tomeet short-term needs

Diversification in the equity portfolio is a must as41% of the clients portfolio is constituted byAxisESOPs.

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Recommendations

Post-retirement extraordinary expense (childsmarriage) can be either met through available corpusor provision can be made for the same at the time ofretirement

A prudent choice of asset classes, investmentinstruments and stocks (in case of direct equity)should be made for attaining maximum possible gains

and build up wealth rather than keeping them inSavingBankaccount.

Insured to a lesser extent.