Question No 1
Rajiv Gupta is 40 years old and his annual income for the just concluded year was
Rs.800,000. He expects his income to increase by 12 per cent per year till he retires at the age
of 60. Rajiv Gupta expects to live till the age of 75. In the post-retirement period, Rajiv
Gupta would like his annual income from his financial investments to be 40 percent of his
salary income in his last working year. Further, he would like the same to be protected in real
terms. Rajiv Gupta owns a house (on which all the mortgage payments have been made) and
has Rs. 5,00,000 of financial assets. He wants to bequeath. The house to his son and Rs.
1,00,00,000 to his daughter when he dies. The current financial assets and future savings of
Rajiv Gupta are expected to earn a nominal rate of return of 10 percent per annum. The
expected inflation rate for the next 50 years is likely to be 4 percent.
1. What proportion of his salary income should Rajiv save till he retires so that he can
meet his post retirement financial goals?
2. If Rajiv Gupta wants to retire at the age of 50, to pursue other interests in life, what
proportion of his salary income should he save?
Rajiv's current income 8,00,000 Current financial 5,00,000
assets
Rajiv's income at the time of 7717034.47 Returns on the 10,00,000.
retirement financial assets till he 00
retires
Rajiv's income at the time of 3728765.7 Returns on the 6,00,000.0
retirement (inflation adjusted) 15 financial assets till he 0
retires (in real terms)
Expected Return from financial 1491506.28
assets (in real terms) 6
Sub Question 1
Expected Return from financial assets (in real terms) 14,91,506.29
1
Investment required in financial assets to meet goals 1,19,32,050.29
Current Investments 5,00,000
Increase in savings in order to invest 1,14,32,050.29
Total Salary in the next 20 years 6,45,58,988
Proportion. 17.71
Sub Question 2
Expected Return from financial assets 993871.4267
Investment required in financial assets to meet goals 7950971.413
Current Investments 5,00,000
Increase in savings 74,50,971
Total Salary in the next 10 years 1,57,23,667
Proportion 47.38698417
Question 2
As a financial planner at Acme investments I would develop the following asset mix
for my 3 clients
Mahesh
Retirement lump sum = 14 lakhs
Savings = 2 lakhs
Total in hand = 16 lakhs
Yearly pension = Rs. 75 thousand.
As Mr. Mahesh is old, he wants to avoid capital erosion and he needs his portfolio to
generate Rs.75000 to meet his expense for one year. Keeping the following details in
mind the following plan has been made for Mahesh.
1. Senior Citizens' Saving Scheme (SCSS) can be availed from a post office or a
bank by anyone above 60. Early retirees can invest in SCSS, within three months of
receiving their retirement funds. SCSS has a five-year tenure, which can be further
extended by three years once the scheme matures.
2
POMIS is a five-year investment with a maximum cap of and Rs 4.5 lakh under single
ownership. The interest rate is set each quarter and is currently at 7.8 per cent per
annum
•SCSS = Rs. 10 lakhs @ 8.6% p.a = Rs. 86000 p.a
•POMIS= Rs.4.5 Lakhs @ 7.8% p.a = 35100 p.a
Praveen
As Praveen graduated from B-school and is earning a decent salary, unlike Mahesh
he can invest his funds in mutual funds and equity too. He also has received Rs. 10
Lakhs so the following portfolio is made and based on the risk appetite the
percentage of investments may vary
Split of the salary:
• Expenditure: 50% of the salary
• Emergency funds: 5% of the salary
• Investments: 45% of the salary
25% investments:
o Systematic Investment Plan – 7.5%
o Gold ETF -10%
o Stocks - 20%
o Insurance – 7.5%
Deepika
Deepika being a handicapped millionaire must think of owning a house rather than
taking a house for rental for both her safety and as an addition to assets.
Her inherited income is Rs.60 Lakhs so out of that if she buys a home for Rs.18lakhs
she can use the remaining for her expense and investments.
3
The net amount after purchasing home = Rs. 42 Lakhs.
• Expenditure: 30% of the salary
• Emergency funds: 20% of the salary
• Investments: 50 % of the salary
As she is handicapped her emergency fund should be higher than praveen’s
portfolio.
NPS has an age eligibility from 18 to 65 it can be extended all the way to the age of
70. Investment in NPS is eligible for tax deduction up to Rs 1.5 lakh under Section
80C NPS money is invested in equity and debt funds as per the investor’s choice and
generate returns. On maturity, 60% of the NPS is tax free
POMIS is a five-year investment with a maximum cap of and Rs 4.5 lakh under single
ownership. The interest rate is set each quarter and is currently at 7.8 per cent per
annum
•POMIS= Rs.4.5 Lakhs @ 7.8% p.a = 35100 p.a
50% investments:
• Systematic Investment Plan – 5%
• Gold ETF - 10%
• Stocks - 20%
• Insurance – 15%