PART-I

Sample Case Study

(Reference date: April 1, 2024)

Rajkumar and Lakshmi are a middle-aged couple living in the South Indian city of Chennai in
the traditional Mylapore neighbourhood, along with Rajkumar’s parents in their ancestral
house. Rajkumar is 45 years old, and Lakshmi is 43 years old. Rajkumar’s father is retired
from state govt service and mother is a housewife. Father is 70 years old, and mother is 67
years old. He gets a monthly pension of Rs 23,000 which is revised from time to time as per
the State dearness allowance rules.
Rajkumar has two siblings, one elder brother and a younger sister. The sister is married and
stays with her family in the United States. The brother is employed in an information
technology company and works out of Bangalore. His brother’s family consists of wife and a
son studying in college.
Lakshmi’s mother passed away 3 years ago, and her father stays in own house in Chennai
with his married son, who is younger to Lakshmi and is Lakshmi’s only sibling. Her father is
72 years old and is in good health.

Rajkumar is self-employed and operates as a free-lance consultant in the field of information

technology after working in the corporate world for 15 years. Last year, he has generated a
total billable value of Rs 42 lakh.

Lakshmi is employed in a logistics company in Chennai and draws a consolidated monthly

salary of around Rs 1 lakh after PF deductions as per the following salary structure finalised
for the Financial Year 2024-25:
Basic: Rs 45,000
DA: Rs 9,500 (50% of the DA is considered for retirement benefits)
HRA: Rs 20,000
CCA: Rs 15,000
Transport Allowance: Rs 10,000
EPF: 12% of Basic Salary and applicable DA

Lakshmi pays a monthly rent of Rs 25,000 to her father-in-law.

The couple has two daughters , aged 18 years and Akshara aged 16 years. Jahnavi is finishing
her school education and is intending to pursue engineering. She is appearing in the entrance
tests for the same. Younger daughter Akshara wants to become a lawyer and intends to join
one of the prestigious National Law Universities.

They purchased a house, a ready to move in property, in the upmarket Adyar area of Chennai
in 2016. It has been let out since. A loan of Rs 45 lakh was availed for a contracted period
20-year term at a floating 8% rate of interest. They are receiving a monthly rent of Rs 20,000
from the flat which is shared by the couple equally.

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Rajkumar is not covered under any organized retirement scheme. Since opening his Public
Provident Fund (PPF) account on 1 April 2018, he has been methodically investing Rs 1 lakh
at the beginning of every financial year.
Both husband and wife are fond of traveling. However, their professional commitments leave
them with little opportunity to have joint vacations often. They would like to set aside some
funds for traveling before and after retirement.
They are lagging in managing their pure risks. Their insurance agent has managed to push
some policies in the past, both together pay a yearly premium of Rs 75,000 toward
endowment and money-back insurance policies, the total sum assured of Rajkumar is Rs 20
lakh and of Lakshmi is Rs 10 lakh.
Rajkumar uses the car for his daily commute and work-related travel, which he had purchased
3 years ago availing of a loan from a bank. Lakshmi does not use the car as her office is close
by and she uses public transport. For longer-distance travel, she manages to call a driver
from a popular app service to drive their SUV, which the family also uses for family outings.
Below is the description of their assets and liabilities:
Assets: (as valued most recently)
House: Rs 75 lakh
Car: Rs. 7,00,000
SUV: Rs. 10,00,000
Mutual fund investment (ELSS) in the name of Rajkumar: Rs 5.50 lakh and Lakshmi: Rs 3.75
lakh
Mutual fund Equity in the name of Rajkumar: Rs 22.50 lakh
Mutual fund Debt in the name of Lakshmi: Rs 6.50 lakh
Mutual fund Liquid in the name of Rajkumar: Rs 5 lakh
Direct Stock Market investment in the name of Rajkumar: Rs 7.50 lakh
Investment in Private Equity in the name of Rajkumar: Rs 10 lakh
PPF Balance in the name of Rajkumar as on 31st Mar2023: Rs 7.73 lakh
EPF in the name of Lakshmi: Rs 25.32 lakh

Liabilities: (as valued most recently)

Housing Loan: Rs 36.43 lakh
(contracted in May 2016 and shared in equal proportion between Rajkumar and Lakshmi; first
EMI on 1st June 2016, and thereafter on first day of every month)
Car loan: Rs 4.73 lakh
(Rajkumar availed a car loan of Rs 7.50 lakh in March 2021 at a floating rate of 8.5% per
annum on reducing balance basis for a term of 7 years; first EMI on 1 st April 2021, and
thereafter on first day of every month)
Credit Card liability: Rs 65,513

Following are the details of monthly household expenses of the family:

Household Expenses: Rs 50,000
Rent to Parents: Rs 25,000
School Fees: Rs 23,000
Home Loan EMI: Rs 37,639
Car Loan EMI: Rs 11,877
Other Expenses (Eating Out, Entertainment): Rs 10,000

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Annual gross returns from various asset classes and inflation (assumptions):

Equity / Equity MF schemes / Index ETFs: 11%

Aggressive Hybrid MF schemes with over 65% in equities: 9.5%
Conservative Hybrid MF schemes with under 25% in equities: 7%
Long-term bonds/ Debt MF schemes/ Government Securities: 7.5%
Liquid Funds and MF schemes: 5.5%
Gold and linked investments: 6.5%
Public Provident Fund (PPF): 7.1%
Expected return in risk-free instruments: 5.5%
Real estate appreciation: 6.5%
Inflation: Short to medium term 6.5% to 5.5%; long term 4% (except as otherwise stated
in a question body).

Cost Inflation Index (CII) values for the past five financial years:
2018-19: 280
2019-20: 289
2020-21: 301
2021-22: 317
2022-23: 331

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[15 questions are placed below based on the case discussed above. In CFP® Exam,
such questions are 25 in number]
Investment Planning and Asset Management

Rajkumar expects to accumulate in his PPF account at least Rs 60 lakh by his age 60 years
considering the annual rate of interest of PPF continuing to be 7.1%. He would invest these
funds concurrently with Lakshmi’s retirement upon her attaining 60 years of age. Till such a
time, the funds would stay in his PPF account, extended without further contribution. The
living expenses during retirement would be equivalent to the current monthly Rs 57,500
considering annual inflation throughout at 4%. He intends to contribute half of such living
expenses through an inflation-adjusted immediate annuity product purchased out of PPF
account proceeds. If an annual real rate of return of 1.5% is contracted in such an annuity
then, up to what age will the annuity product sustain his part of retirement living expenses?

A)73 years
B)71 years
C)72 years
D)74 Years
Solution

Expected accumulation in the PPF account on Rajkumar's age of 60

years ₹60,00,000
Annual Rate of interest 7.10%
Maturity of PPF account preferred at age 62 when buying the
annuity product ₹68,82,246
Current monthly expenses at age 45 of Rajkumar ₹57,500
Annual expenses 17 years hence-Rajkumar's age of 62-at 4%
annual inflation ₹13,44,051
Half of such expenses are to be drawn from an annuity ₹6,72,026
The real rate of return to be provided by the annuity product 1.50%
Number of years after Rajkumar's age 62 when the annuity will
sustain 11.02
Rajkumar's age up to which annuity will sustain payment stream 73.02

Personal Finance Management

Q2 The interest rate on the home loan availed by the couple increased with effect from 1 st
August 2023 to 8.9% per annum. They had the option to either pay a higher EMI amount or
pay the same EMI for an increased term. The couple opted for an increase in the tenor of the
loan. How many additional EMIs will the couple have to pay owing to this increase in the
interest rate by the bank?

A)At least 14 complete additional instalments

B)15 additional instalments
C)At least 12 complete additional instalments
D)Just about 4 additional instalments

Housing loan contracted rate- Original 8%

Loan amount ₹45,00,000

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 Period 20 Years
Original EMI -₹ 37,640
No. of EMIs paid prior till Aug 2023 87
Remaining EMIs that began from Sep 2023 153
Outstanding principal amount of loan ₹ 36,03,159
New Rate 8.90%
New Period beginning September 2023 168
Increase In EMIs 14.51

Risk management and Insurance Planning

Q3: You find that the couple is heavily underinsured for their income profile and liability of
upcoming financial goals. One way to look at the adequacy of life insurance is the individual
contribution to the family income. Rajkumar and Lakshmi respectively are likely to pay Rs
4.50 lakh and Rs 1.50 lakh in income tax for the current financial year. Further, Rajkumar
spends 10% of his post-tax income on himself, whereas the same ratio is 25% in the case
of Lakshmi. Both are expected to work till their respective age of 60 years. The annual
income growth considered for Rajkumar is 5%, and for Lakshmi is 7%. What should be the
additional insurance cover on the above-cited income replacement method for Rajkumar
and Lakshmi, if the claim amount gets invested in the risk-free instruments the expected
return from which can be taken as 5.5% per annum?
A)Rs 5.30 crore for Rajkumar and Rs 1.60 crore for Lakshmi
B)Rs 5.25 crore for Rajkumar and Rs 1.90 crore for Lakshmi
C)Rs 3.90 crore for Rajkumar and Rs 1.40 crore for Lakhsmi
D) Rs 4.70 crore for Rajkumar and Rs 1.50 crore for Lakshmi

Solution
Rajkumar
Current Income ₹ 42,00,000
Income Exclusive of Self Expenses and Tax ₹ 33,75,000
Expected Income Growth 5%
Risk Free Rate 5.50%
Real Rate ( Income Growth as inflation 0.48%
Number of Years of Earning 15
Required Coverage ₹ 4,89,79,504
₹ 4,69,79,504
Lakshmi
Current Income ₹ 12,58,800
Income Exclusive of Self Expenses and Tax ₹ 8,31,600
Expected Income Growth 7%
Risk Free Rate 5.50%
Real Rate ( Income Growth as inflation -1.401869%
Number of Years of Earning 17

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 Required Coverage ₹ 1,58,65,442
₹ 1,48,65,442

Investment planning and Asset Management

Q4. For Akshara’s higher education in a law university, an amount of Rs 3 lakh will be required
annually for 5 years escalating at 7% per annum. As per an investment strategy made, you
suggest that they apportion Rs 5 lakh rupees from Rajkumar’s direct stock market investment
along with a level monthly investment (SIP) to be started immediately toward this goal. The
funds thus shall be accumulated in an aggressive hybrid fund. Toward a safer use of funds,
the equivalent annual amounts as required for the year of education expense will be switched
one year prior in a liquid fund from the base aggressive hybrid fund. What should be the
amount of such monthly SIP if the same continues till the last switch to the liquid fund?

A)Rs 17,088
B)Rs 21,794
C)Rs 19,008
D)Rs 20,621

Solution
Annual expense for law college education ₹ 3,00,000
Annual escalation of expenses 7%
Gross investment return from aggressive hybrid funds 9.50%
Investment returns from liquid fund 5.50%
Amount required in year 1- 2 years from now ₹ 3,43,470
to be transferred in Liquid fund 1 year before- 1 year from now ₹ 3,25,564
Amount required in year 2-3 years from now ₹ 3,67,513
to be transferred in Liquid fund 1 year before-2 years from now ₹ 3,48,353
Amount required in year 3-4 years from now ₹ 3,93,239
to be transferred in Liquid fund 1 year before- 3 years from now ₹ 3,72,738
Amount required in year 4- 5 years from now ₹ 4,20,766
to be transferred in Liquid fund 1 year before- 4 years from now ₹ 3,98,830
Amount required in year 5- 6 years from now ₹ 4,50,219
to be transferred in Liquid fund 1 year before- 5 years from now ₹ 4,26,748

PV of withdrawals from Liquid fund today ₹ 14,20,245

Investment today in Aggressive hybrid fund ₹ 5,00,000
Remaining value to be accumulated through SIP in 6 years ₹ 9,20,245
SIP amount ₹ 19,008

₹ 15,55,168
₹ 14,20,245
₹ 9,20,245

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 ₹ 19,008

Personal Finance Management

Q 5. For Jahnavi’s higher education goal of four years, due immediately, they are
contemplating taking an education loan which the bank shall disburse every year in the
beginning coincident with the use. The repayment of the loan would begin a year after the
complete disbursal. The instalments disbursed would attract an 8% rate of interest per annum
and the interest would cumulate to make the principal repayable in 7 years in monthly equated
instalments considered at 8% per annum interest itself. The annual fee payable immediately
is Rs 5 lakh and is likely to escalate at 10% every year. What will be the EMI of the loan when
the repayment becomes due?

Solution

A)Rs 43,602
B)Rs 47,090
C)Rs 40,960
D)Rs 49,049
Solution
Fee in the First Year 500000
Fee in the second year 550000
Fee in the third year 605000
Fee in the fourth year 665500
Loan Issued 500000.00
Second-year loan value 1090000
Third-year loan value 1782200
Fourth-year loan value 2590276

Balance till the end of the Moratorium 2797498.08

₹ 43,602.40
Tax Planning and Optimisation

Q6: Rajkumar has been availing old tax regime to pay income tax. You ask him to consider
opting for presumptive taxation under section 44ADA under the same regime for AY 2024-25
taking maximum expenses under the section. Considering Rs 1.5 lakh toward deductions
under Chapter VI and a Rs 75,000 toward his share of loss from house property, what will be
tax liability under presumptive taxation under the old tax regime for AY 2024-25?

A)Rs 3,90,000
B)Rs 5,69,400
C)Rs 6,39,600
D)Rs 7,79,400

Total Income ₹ 42,00,000

Expenses under section 44 ADA ₹ 21,00,000

Loss from house property ₹ 75,000

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 Net Income ₹ 20,25,000
Deduction under section 80 C ₹ 1,50,000
Taxable income ₹ 18,75,000
Tax on Income ₹ 3,75,000
Cess ₹ 15000
Total Tax Liability ₹ 3,90,000

xPersonal Finance Management

Q7: Rajkumar got the credit card statement dated 20th Feb’24, the due date of which was 7th
Mar 2024 the credit card stipulates a minimum balance to be paid as 5% of the outstanding
amount and recovers 4 % monthly interest calculated by average daily balance method, on
balances carried forward and to fresh billings up to the date of settlement. The late payment
charges are linked to 30% of the minimum amount due with a minimum of Rs. 500. Rajkumar
did some shopping on 8th Mar’24 and paid for the full amount on 12th Mar’24 through internet
banking. He did the following shopping. Rs. 23343/- on 12/2/2024, Rs. 42,175/- on
19/2/2024 and Rs. 30,000/- 0n 08/3/2024. What will be the total amount due in the next bill
as an interest and late payment charge if a GST of 18% is applicable?
A) Rs.2142
B) Rs. 3396
C) Rs.3481
D) Rs.3075

Solution

Initial Purchase on 12/2/2024 23343

Purchase on 19/2/2024 42175
total outstanding as on statement date 65518
Late Payment Charges 982.77

Total LPC 982.77

Interest 1809
Additional Purchases 30000
Total Outstanding as on 8/12 95518
Interest for 4 days on Total
Outstanding 157.8
Interest +LPC 2950.0
GST 531.0

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 Total Interest and Late Payment
Charges 3480.9

Risk Management and Insurance Planning

Q8: Lakshmi has a health insurance plan from the employer that covers the family up to a
specified amount. Rajkumar, being self-employed, is contemplating buying a separate
health cover for himself besides a family floater health plan for additional coverage for his
family. What do you suggest to him on this aspect?

A)Rajkumar should first buy an accidental disability and critical illness insurance
to cover this pure risk attributable to his situation besides protecting his family’s
financial stability in the event.
B)Rajkumar should only buy simple health insurance for himself. The family seems well-
covered under Lakshmi’s employer-provided group health insurance.
C)Rajkumar should go for a high-value family floater policy which shall provide additional
and alternative health insurance to the family.
D)Rajkumar should take a low-value family floater with a high-value top-up plan which shall
provide the necessary financial protection in case Lakshmi’s employer-provided group health
cover is insufficient.

Tax Planning and Optimization

Q9: Rajkumar is not very active in direct stock investing, his investment being in four stocks
one of which is ABC Limited. He purchased 200 shares for Rs 525 of this company in July
2017. The highest price on 31 Jan 2018 of ABC Limited was Rs 950. The stock currently quotes
Rs 1,675. He had additionally purchased 100 shares of ABC Limited 6 months ago for Rs
1,900. The fundamentals of ABC Limited not being sound of late, Rajkumar wants to sell his
entire holding in the company. What would be the tax liability if the entire holding in ABC
Limited is liquidated, on a standalone basis, that is, no other securities transactions are
considered during the financial year 2023-24?
A)Rs 4,680
B)Rs 2,340
C)Rs 11,180
D)Rs 12,740
Solution
The acquisition price of 200 shares of ABC Ltd. at Rs 525 in 2017 ₹ 1,05,000
Highest market price as of 31-01-2018 for grandfathering rule ₹ 950
Acquisition cost to be used for grandfathering purpose ₹ 1,90,000

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 The current market value of original pre-2018 holding @ Rs 1675 ₹ 3,35,000
Long-term capital gains ₹ 1,45,000
Short-term capital loss to be incurred on 100 shares purchased 5
months ago ₹ -22,500
Net amount of capital gains (LTCG) on sale of ABC Ltd. shares ₹ 1,22,500
Tax on LTCG ₹ 2,340

Retirement Planning

Q10 As an alternative for their 25-year-long retirement starting with Lakshmi’s age of 60
years, you suggest a bucket strategy wherein the expenses for the first five years are put in
liquid funds while the remaining amount is kept invested in an equity mutual fund. At the end
of every 5 years, an equivalent amount of the next 5 years’ expenses is switched from equity
mutual funds to liquid funds. This will continue until the last such switch of funds at age 80
of Lakshmi. You estimate that the expenditure equivalent to the current Rs 60,000 per month
shall be required during retirement years, with annual inflation in expenses, including lifestyle,
considered 5.5% up to Lakshmi’s retirement and 4% during retirement years. What should
be the retirement corpus targeted as per this strategy?

A)Rs 2.49 crore

B)Rs 2.23 crore
C)Rs 1.95 crore
D)Rs 1.48 crore
Solution
Current Expense ₹ 60,000
inflation pre-retirement 5.50%
Expense at retirement ₹ 1,49,088
Annual Expense ₹ 17,89,058
Annual increase in expense post-retirement 4%
Return from Liquid funds 6%
Amount to be kept in Liquid fund for the first bucket ₹ 86,14,039
Expenses after 5 years- at age 65 ₹ 21,76,662
Amount to be put in Liquid fund after 5 years- at age 65 for 66-70 ₹ 1,04,80,295
Expense after 5 years- At age 70 ₹ 26,48,242
Amount to be put in Liquid at the age of 70 for 71-75 ₹ 1,27,50,882
Expenses after 5 years- at age 75 ₹ 32,21,992
Amount to be put in liquid fund after 5years- at age 75 for 76-80 ₹ 1,55,13,397
Expenses after 5 years- at age 80 ₹ 39,20,045
Amount to be put in liquid fund after 5 years- at age 79 for 81-85 ₹ 1,88,74,420
Amount to be invested at the time of Retirement ₹2,49,07,682

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 Alternatively, five year compounded rate in equity 68.51%
Five year compounded rate in expense inflation 21.67%
Amount to be accumulated in equity as retirement corpus ₹ 2,49,07,682

Estate Planning and Wealth Transfer

Q11 What advice do you offer to the couple on managing their daughters’ affairs in case both
husband and wife suddenly happen to lose their lives simultaneously?

A)They should provide a testamentary Trust through a Will; such a Trust shall hold
their earmarked assets and receivables and shall manage both daughters’ financial
affairs under an appointed guardianship.
B)In such an exigency, Rajkumar’s or Lakshmi’s parent/s can become Jahnavi’s and Akshara’s
natural guardians and receive the requisite authority to manage relevant resources.
C)They should set up a minor beneficiary trust by dedicating financial resources and by
preparing guidelines on funds management by a trustee and the appointed person.
D)The Will is the easiest of estate planning documents to prepare by which they should leave
all their fixed and financial assets, receivables, etc. to their daughters, being the sole
beneficiary.

Personal Finance Management

Q12: Rajkumar had availed a car loan of Rs 7.50 lakh in March 2021 at a floating rate of 8.5%
per annum on a reducing balance basis for a term of 7 years. There is a prepayment penalty
of 2% of the repayable principal amount before completing 5 years in the loan tenor. The
lender has recently informed Rajkumar of a rise in the applicable interest rate by 1% effective
from the date 1st May 2024 and the resultant higher EMI in subsequent months of the balance
period of a 7-year tenor, or an increased tenor if the EMI is retained as original. He asks you
whether to retain or prepay the loan. What do you advise him in this matter, and importantly,
how do you reason that?

A)Prepay the loan as the extra interest that gets paid due to the increased rate is Rs 1.38
lakh more than originally contracted.
B)Retain the loan at the same EMI as the resultant one additional EMI of Rs 11,877 payable
after nearly four years costs in present value is almost equal to the prepayment penalty today
when discounting at a risk-free rate.
C)Prepay the loan as the retention of the same EMI as before entails one additional EMI of Rs
11,877 which is Rs 2,580 more than the prepayment penalty.
D) Retain the loan at increased EMI for the remaining tenor as the total additional
interest outgo over the remaining around 4 years is just Rs 821 more than the
prepayment penalty on 1st May 2023.

Solution
Amount of loan contracted in March 2021 ₹ 7,50,000
Rate of interest, floating 8.50%
Months (tenure) of loan 84
EMI on the loan ₹ 11,877
Outstanding amount of loan after 38 paid EMIs as of 1 May 2024 ₹ 4,64,885
Revised rate of interest (1% increase) 9.50%

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 Revised EMI for 46 remaining instalments ₹ 12,097
Amount of interest payable at an increased rate in the remaining
tenure ₹ 91,592
Amount of interest payable at the original rate in the remaining
tenure ₹ 81,473
Extra interest payable over the next 46 months due to the revised
rate ₹ 10,118
Prepayment charge @2% payable if the loan is closed ₹ 9,298
₹ 821

Investment Planning and Asset Management

Q13 The couple wants to set up a corpus for their vacations every year after 5 years. The
vacations will continue until Rajkumar’s age of 70, that is for a total of 21 vacation years.
They want to have a dedicated fund that provides for vacation expenses equivalent to the
current Rs 1.5 lakh per vacation, such expenses rising annually by 8%. You advise them to
accumulate and manage such expenses in an equity fund which may return potentially 10%
after tax per annum. What equal amount should they invest annually for 18 years, starting
immediately and until the year of Lakshmi’s retirement at age 60 to have enough funds to
meet their vacation goal?
A) Rs 2,92,427
B)Rs 4,29,671
C)Rs 1,81,574
D) Rs 2,66,792
Solution
Proposed vacation expenses at today's costs ₹ 1,50,000
Cost escalation per annum 8%
First-year expenses in 5 years from today ₹ 2,20,399
Annual vacation to continue for a period 21
Net investment return from the fund used for
accumulation/withdrawal 10%
PV of vacation expenses when they begin after 5 years ₹ 38,76,301
PV of vacation expenses today ₹ 24,06,878
Annual investment to be set aside beginning immediately for 18
years ₹ 2,66,792

Investment planning and Asset Management

Q.14 Rajkumar is planning to celebrate his 55th B’day in grand style at Las Vegas along with
his wife Reena, (the trip costs Rs. 10 Lakhs in current terms, escalating at 5% per annum)he
wants to invest for this goal now, you become a little creative and tell him a strategy wherein
regular annual investment will be done 60% in Equity, 30% in Debt and 10% in gold through
gold ETF for the first five years, after which the portfolio will be rebalanced in the ratio of
30%, 60% and 10% in Equity, Debt and Gold and the asset allocation of annual investment
will change to the same ratio for the next four years, after which the whole amount will be
transferred to liquid fund one year before the goal. If the returns from Equity, debt, and gold
are taken to be 11% p.a.,7% p.a., and 8% p.a. respectively throughout the investment period
and the return from the liquid fund is 5.5% p.a. how much money should he be investing
every year towards this goal?

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A)Rs.1.16 Lakh
B)Rs 1.07 Lakh
C)Rs.1.09 Lakh
D)Rs 0.71 Lakh

Cost of Vacation Today 1000000

Cost after 10 Years 1628894.627
amount to be put in liquid 1
year before 1543975.95
Let the amount be put in is 100
Equity 60
Debt 30
Gold 10
Equity 11%
Debt 7%
Gold 8%
FV in equity ₹ 414.77
Debt ₹ 184.60
Gold ₹ 63.36
₹ 662.73
Equity ₹ 198.82
Debt ₹ 397.64
Gold ₹ 66.27
Equity 30
Debt 60
Gold 10
Equity accumulation ₹ 458.66
Debt ₹ 806.27
Gold ₹ 138.83
₹ 1,403.75
Unitary Method ₹ 1,09,989.30

Investment Planning and Asset management

Q15: They foresee the wedding of their daughters after they individually attain the age of 25
years. The current expenses for a modest wedding, per wedding, are Rs 30 lakh, escalating
annually at 5.5%. To meet these goals, you suggest investing in the current balances all ELSS
schemes, such investments have crossed the mandatory lock-in period. Additionally, you
suggest they begin a monthly SIP towards this goal so that the required expenses for both
wedding occasions are available in liquid funds when Jahnavi reaches the age of 25 years.
What kind of risk would they need on their investment if they could invest an equal amount
of Rs 45,000 per month for this goal?
A)15.80% p.a.
B)14.40% p.a.
C)11.30% p.a.
D)16.90% p.a.
₹ 30,00,000

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Current Expense per wedding
Inflation 5.50%
Jahnavi, currently 18 years, has wedding expenses on attaining age
25 ₹ 43,64,037
Akshara, currently 16 years old, has wedding expenses on attaining
age 25 ₹ 48,57,283
Amount to be made available in liquid funds, 1t 6%, after 7 years ₹ 86,87,002
Amount redeemed today from ELSS schemes ₹ 9,25,000
Investment Period ( Years) 7
Monthly Investment ₹ 45,000
Rate required 1.13%
Annual 14.40%

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PART-II
(Standalone questions on Financial Planning Practice Standards, Process,
Regulations, etc.)

[5 questions are placed below based on the areas highlighted above. In CFP® Exam,
such questions are 25 in number]

Q1: What would essentially come under the purview of investment advice under SEBI
(Investment Advisers) Regulations, 2013?

A) Advice on investment in securities given through newspapers, magazines, and audio-

visual media to the general public.
B) Advice on constructing retirement portfolio by other registered individuals and which may
potentially involve securities.
C Advice on investment in securities provided to clients based out of India, not being an NRI
or a person of Indian origin.
D) Advice relating to investing in securities and investment products, and on
investment portfolio containing such securities/products.

Q2: What would the Scope of Engagement of a financial plan comprise of?

A) Details of activities to be conducted under financial planning to be determined by a

client.
B) List of all the activities that a financial planner will decide to conduct under financial
planning.
C) Details of activities to be conducted under financial planning to be determined
through mutual understanding of a financial planner and a client.
D) Scope of those activities that need engaging other professional/s including executor/s of
a financial plan.

Q3: Your client wants to understand the rationale of having the periodic review of a financial
plan to be prepared. Which one of the following avoids a mention?

A) To comply with the 6-step financial planning process, the review being the last
step.
B) To find out any adjustment to the earlier recommendations due to changes in personal/
economic conditions.
C) To assess the progress towards achieving the goals as per recommendations.
D) To confirm that the recommendations as agreed are implemented as per roadmap.

15
Q4: Which of the following professional entities providing advice may be required to register
under the SEBI (Investment Advisers) Regulations, 2013?

A) A distributor of mutual fund products registered with AMFI offering investment advice
incidental to his primary activity.
B) An LLP, which provides advice on a wide variety of investment products and
securities to resident Indians.
C) A law firm providing investment advice to its clients of wealth transfer and succession
planning services incidental to its legal practice.
D) A Chartered Accountant firm furnishing investment advice to its clients incidental to its
professional practice.

Q5: You have finished analysis of the financial situation and risk profile of your client. Which
is an appropriate position for you to next enact?

A) Submit to the client, those financial goals that are likely to be achieved basis the client's
financial situation.
B) Identify other issues that may potentially impact the client's ability to achieve
financial goals before sharing it with the client.
C) Consider assumptions regarding rates of investment, inflation, etc. which maximize the
chances of achieving the client’s goals.
D) Freeze the scope of engagement based on the available information.

16
Additional guidance – Working with differing growth rates and variable inflation
figures (over time)

Q1: Your client spends Rs 1 lakh monthly toward household expenses at his current age 40.
He wishes to maintain their current lifestyle for 30 years into retirement, he expects to
retire at 60. You propose a “three bucket” strategy – first being liquid of immediate 5
years, the second being balance of next 10 years and the third being growth of last 15
years. You propose concentrate on the third growth bucket immediately in equity
investments.
The middle-balanced bucket would not be touched for retirement income for 20 years into
retirement. After every five years into retirement the next 5-year equivalent expenses of
liquidity will be derived from the growth bucket and kept in liquid investments basket for 5
years, first such basket thus triggering at age 65.
What size of the last 15-year growth bucket would you aim at building now which would be
available for investing as above when your client retires?

Annual Gross returns assumed (for different tenures) from various asset classes and
inflation rates:
(a) Immediate 5 years; (b) 6 – 10 years; (c) 11 – 20 years; (d) past 20 years
1. Equity/Equity MF schemes/Index ETFs: (a) 11%; (b) 9.5%; (c) 7.5%; (d) 6.5%
2. Cash equivalents and liquid investments: (a) 3.5%; (b) 3%; (c) 2.5%; (d) 2%
3. Inflation: (a) 5.5%; (b) 4%; (c) 3.5%; (d) 3%

Solution:
Current monthly household expenses at age 40 of Client ₹1,00,000
Estimated annual expenses adjusted to inflation when client retires at
age 60 ₹26,91,620
Equity investment annual returns after 20 years 6.50%
Liquid investment annual returns after 20 years 2.00%
Inflation after 20 years 3.00%
Growth Bucket size calculation at Client's age of 60
First 5-yr basket of liquid investments delivered from equity at age
65
- Expenses at age 65 ₹31,20,325
- 5-year basket size of liquid investments at age 65 ₹1,59,10,554
- PV in growth bucket at age 60 of Client ₹1,16,12,809
Second 5-yr basket of liquid investments delivered from equity at 70
- Expenses at age 70 ₹36,17,312
- 5-year basket size of liquid investments at age 70 ₹1,84,44,693
- PV in growth bucket at age 60 of Client ₹98,25,968
Third 5-yr basket of liquid investments delivered from equity at 75
- Expenses at age 75 ₹41,93,456
- 5-year basket size of liquid investments at age 75 ₹2,13,82,454
- PV in growth bucket at age 60 of Client ₹83,14,065
The size of growth bucket at age 60 of Client ₹2,97,52,842

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Q2: A family plans a foreign vacation every 5 years, their recent such vacation has just
completed which had an outlay of Rs 3 lakh. The cost of foreign vacation escalates at 8%
year on year. The family wants to know such costs for the next four vacations at the end of
which the couple expects to retire. This corpus would be set aside today in equity funds.
What would be that amount today if equities are expected to return 11% in the next 5
years, 9.5% in the following 5 years and 7.5% in the remaining 10 years?

Solution:
Current cost of foreign vacation ₹3,00,000
Annual escalation in such vacations 8.00%
Equity returns in first 5 years 11.00%
Equity returns in years 6 to 10 - next 5 years 9.50%
Equity returns in years 11 to 20 - next 10 years 7.50%
PV of 1st vacation due in 5 years ₹2,61,592
PV of 2nd vacation due in 10 years ₹2,44,159
PV of 3rd vacation due in 15 years ₹2,49,891
PV of 4th vacation due in 20 years ₹2,55,756
Total fund value in equities today for next four vacations ₹10,11,398

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Q3:Retirement Planning – transitioning buckets
Your client, 20 years from retirement, is conservative in her investment approach. She spends
monthly Rs 80,000. The inflation currently averages 5% annual which you expect to prevail
until her year of retirement. You estimate her 30-year retirement fund corpus. You provide
for inflation-linked annual withdrawals from liquid securities and plan parking funds equivalent
to the first 10-year-period’s expenses in liquid securities on retirement. You consider net
return from liquid securities at 4% p.a. throughout retirement years. Inflation post-retirement
would be considered moderating to 3.5% annual for the first 20 years and then further to
2.5% in the remaining 10 years. The retirement expenses for the subsequent two 10-year
periods shall be considered funded through an asset allocation fund returning post-tax 5.5%
throughout with an arrangement that funds equivalent to each subsequent 10-year-period’s
expenses would be placed in a lump sum in liquid securities in the beginning of such 10-year
term by redeeming the asset allocation fund. What retirement corpus should be aimed at?

Answer:
Rs 6,17,98,468

Solution:

Current monthly household expenses 20 years from retirement ₹80,000

Inflation expectation until retirement, i.e. for next 20 years 5.00%
Estimated annual expenses adjusted to inflation on retirement ₹25,47,166
Asset allocation fund annual returns post tax throughout retirement
(30 years) 5.50%
Liquid securities annual returns throughout retirement (30 years) 4.00%
Inflation during the first 10 years of retirement 3.50%
Inflation during next 10-year term during retirement 3.50%
Inflation during the last 10-year term during retirement 2.50%
First 10-year expenses parked in liquid securities basket ₹2,49,27,594
PV of next 10 years' expenses to be transferred to liquid securities
(after 10 years) ₹3,51,62,834
PV of next 10 years' expenses in Asset Allocation fund on retirement ₹2,05,85,398
PV of last 10 years' expenses to be transferred to liquid securities
(after 20 years) ₹4,75,17,067
PV of last 10 years' expenses in Asset Allocation fund on retirement ₹1,62,85,475
Total retirement funds to be aimed at age 60 ₹6,17,98,468

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Q4: Retirement Planning - a sustainable increase in withdrawal
A couple currently spends Rs 80,000 monthly toward their household expenses that could
be counted for their retirement due in the next 15 years. Average inflation is considered 5%
p.a. until they retire. You assess that they can accumulate Rs 2.5 crore from their statutory
savings in these 15 years, and further that their current cash flow permit Rs 1.85 lakh
investment immediately with 10% year-on-year increase in such annual investment until
they retire. You advise to choose equity instruments that can provide an average return of
11% p.a. up to their retirement. Post-retirement the statutory savings along with equity
accumulation would be considered invested in an asset allocation fund returning post-tax
7.5% p.a. Looking at the retirement corpus so accumulated and a visibility of annual
withdrawals during 30 retirement years, what do you assess as an admissible annual
increase in withdrawals?

Answer:
An increase of not more than 3.75% year-on-year would likely make the accumulated
retirement fund sustainable.

Solution:

Estimated accumulation from statutory savings on retirement ₹2,50,00,000

Initial investment made immediately in equity growth fund ₹1,85,000
Incremented investment made year-on-year up to retirement in next
15 years 10.00%
Period of Investment 15
Return expected from equity growth fund 11.00%
₹
Expected accumulation from equity funds 1,24,71,754
₹
Total retirement fund likely available 3,74,71,754
Current annual expenses that would count toward retirement ₹ 9,60,000
Expected annual inflation until retirement 5%
Annual sum considered for withdrawal in the first year of retirement ₹19,95,771
Distribution period in years during retirement 30
The real rate (differential from investment rate) to sustain retirement
fund r 3.62%
Post-tax rate of return on Asset Allocation fund to invest the combined
funds R 7.50%
Sustainable increase in yearly withdrawals (1+R)/(1+r)-1 3.74%

20
Q5: Retirement Planning – curtailment required in expenses to sustain retirement fund
Your couple client has husband, age 45, running a business and wife, age 40, employed.
They currently spend monthly Rs 1.15 lakh, which are expected to escalate annually by 5%
until wife retires early at age 55. The husband would wind up his business in the next 10
years and would bring in Rs 2.5 crore. The funds would provide for the next 5 years’
expenses drawn from liquid funds, returning 6% p.a., while the rest would be invested in a
multi-asset fund fetching 12% CAGR. The wife would take early retirement at her age 55
and would receive superannuation proceeds of Rs 2.5 crore. She would do likewise by
investing the next 5 years’ expenses in liquid funds and carrying the rest to the same multi-
asset fund. The inflation visibility at the wife’s age of 55 onwards would moderate to 4%. If
husband at 65, wife at 60, they redeem the multi-asset fund and invest for next 30 years’
income stream in a moderate risk fund yielding post-tax 7% p.a., what extent of their
continuing annual family expenses could be met during the last 30 years?

Answer:
Nearly 88% of continuing annual family expenses can be met. This would mean a
curtailment of about 12% in the expenses needs to be made during the last 30 years of
retirement to see the retirement funds last.

Solution:

Current household expenses ₹ 1,15,000

Inflation expectation, wife's age of 40 to 55 5.00%
Expenses after 10 years when husband winds up business, wife at
50 ₹ 1,87,323
Capital contributed by husband, wife at 50 ₹ 2,50,00,000
Liquid fund returns 6.00%
PV of 5 years expenses kept in liquid funds, wife 50 to 55 ₹ 1,10,29,300
Remaining capital invested in multi-asset fund @12%, wife at 50 ₹ 1,39,70,700
Revised inflation expectation, wife's age of 55 onwards 4.00%
Capital contributed by wife at age 55 ₹ 2,50,00,000
Expected expenses when wife takes early retirement, at age 55 ₹ 2,39,077
PV of 5 years expenses kept in liquid funds, wife 55 to 60 ₹ 1,38,13,416
Remaining capital invested in multi-asset fund @12%, wife at 55 ₹ 1,11,86,584
Accumulation in the multi-asset fund (both) when wife is at 60 ₹ 6,31,05,455
Returns expected from moderate risk fund, next 30 years 7.00%
Household expenses at the beginning of new 30-year period, wife
at 60 ₹ 2,90,873
Period in years to which the moderate risk fund should sustain 30
Annual expenses that they should start with at wife's age of 60 to
sustain funds ₹ 30,82,832
Equivalent reduced monthly expenses ₹ 2,56,903
Percentage of continuing Annual Family Expenses that can be met 88.32%
[Alternately, curtailment in expenses needed at wife's age of 60 to
sustain next 30 years] 11.68%

Q6: Integration – Investment with Retirement

21
You look at the situation of your client on 1st April 2023 who is a working individual intending
to retire in March 2040. He does not have a structured retirement plan and relies heavily on
his Public Provident Fund account in which he has already accumulated Rs 27,95,740 as on
31st March 2023. The account was opened in February 2010. He shall invest the maximum
permissible amount in the PPF account on the first available working day of April every year
in the remaining period and shall keep extending the account until his retirement with such
annual maximum contributions. You advise him to utilize the PPF maturity proceeds toward
purchasing a one-year-deferred increasing annuity, returning an estimated 5.5% p.a.,
offering an initial payment of Rs 10 lakh and then incrementally 4% year-on-year for 15
annual terms. Considering PPF interest rates to be maintained at average 7% in the remaining
period, what do you assess toward excess or shortfall in his PPF account to arrange the
proposed increasing annuity?

Answer:
Situation of buying the proposed annuity seems comfortable with estimated excess funds
available to the extent of Rs 9 lakh from the PPF account.

Solution:

PPF balance as on 31-Mar'23 ₹ 27,95,740

Annual rate of interest to be maintained in the remaining period 7.00%
Account opened in: February 2010
First financial year closing after the PPF account opened 31-03-2010
Account to mature on: (15 years from the end of 1st financial
year) 01-04-2025
Number of remaining contributions in April every year until
maturity 2
Retirement due in: March 2040
Number of contributions in 3 extended terms of 5 years each
from Apr'25 to Apr'39 15
Total number of PPF contributions until retirement 17
Yearly contribution (maximum permissible currently) ₹ 1,50,000
Expected accumulation in the PPF on retirement ₹ 1,37,81,081
Initial payment from annuity ₹ 10,00,000
Growth In withdrawal 4.00%
Return during withdrawal period 5.50%
Total Annuity payments 15
PV of 15 year increasing annuity with initial payment Rs 5 lakh ₹1,35,95,285
Purchase amount of this annuity with one-year deferred period ₹1,28,86,526
Excess / (Shortfall) in PPF accumulation ₹8,94,555

22
Q7: Integration – Investment and Tax
Your client, who continues is in the 30% income tax slab in FY2023-24, had invested in a
Sovereign Gold Bond series a sum of Rs 4,53,200 in end-December 2021. A total of 100
bonds were acquired at face value Rs 4,582 per unit on which the interest @2.5% p.a. has
been paid every June and December. A discount of Rs 50 per SGB was applied for having
SGB in demat form. The current market price of the same series of SGB, begin-July 2023, is
Rs 5,965. If the client sells from his demat account all the SGB at this price, what indicative
post-tax returns would he have locked into on his SGB investment?

Answer:
Nearly 20% p.a.

Solution:

SGB investment (net after Rs 50 per unit discount) in end-Dec 2021 ₹ 4,53,200
Current Price, begin-July 2023, @ Rs 5,965 ₹ 5,96,500
Period Of Investment 18 Months
CII 2023-24 348
CII 2021-22 317
Indexed cost of acquisition ₹ 4,97,519
Capital Gains (LTCG) ₹ 98,981
Tax on Capital Gains @20.8% ₹ 20,588
Alternately, capital gains without indexation ₹ 1,43,300
Tax on Capital Gains @10.4% ₹ 14,903
Net of tax (capital gains) proceeds (beneficial of the two) ₹ 5,81,597
Face value of 100 units ₹ 4,58,200
Interest received in Jun'22, Dec'22 and Jun'23 ₹ 17,183
Post-tax interest received after tax @31.2% ₹ 11,822
Returns on investment (18 months) (by applying CAGR method) 19.69%

Alternative method to calculate return is the XIRR method:

31-Dec-21 ₹ -4,53,200
30-Jun-22 ₹ 3,941
31-Dec-22 ₹ 3,941
30-Jun-23 ₹ 3,941
01-Jul-23 ₹ 5,81,597
XIRR 19.86%

The XIRR method should be used when the interest payments are more frequent and/or
cumulatively significant when compared with the sales proceeds.

23
Q8: Tax Planning and Optimization – Equity capital gains
Your client acquired 10,000 shares of a listed company in the following manner: 4,000 shares
on June 18, 2020 at Rs 210; 2,500 Shares on August 18, 2021 at 240; and 3,500 shares on
September 7, 2022 at Rs 320. The company has recently paid a dividend of Rs 15 per share,
and Rs 1,35,000 has been credited to the client’s account on July 26, 2023. The client sold all
the shares of this company in the stock market at a price of Rs 300 on July 28, 2023.
Presuming that the client does not make any other transaction during FY2023-24, what would
be the tax liability in AY2024-25 of this company’s transactions alone?

Answer:
Rs 3,40,000 LTCG at flat 10%, Rs 1,50,000 at the applicable slab rate of the client

Solution:

LTCG
Sale Consideration of 6,500 shares @ Rs 300 per share
(acquired > 1 year) ₹ 19,50,000
Cost of Acquisition of 6,500 shares ₹ 14,40,000
LTCG u/s 112A ₹ 5,10,000

STCG (acquired < 1 year) u/s 111A ₹ -70,000

Net LTCG as STCL can be adjusted against either STCG
or LTCG ₹ 4,40,000
Taxable LTCG over the exempt limit of Rs 1 lakh in a
financial year taxable at flat 10% ₹ 3,40,000
Dividend Income at slab rate ₹ 1,50,000

Note: The full amount of dividend is Rs 1,50,000 which is taxable at slab rate being
“income from other sources”. Here, although Rs 15,000 is TDS deducted by the company
and deposited to Income-tax authority, the entire amount receivable shall be shown as
income for arriving at total taxable income.

24
Q9: Tax Planning and Optimization – Debt scheme of Mutual Fund capital gains
Your client invested in a short-term debt fund, growth option, having more than 65%
allocation to debt securities. He invested Rs 2 lakh each in the same month “June” every year
in 2019, 2020 and 2021 at the respective NAV of Rs 16.563, Rs 17.175 and Rs 18.824. If he
redeemed the entire holding on 4th July 2023 at an NAV of Rs 21.873, what would be the tax
implication for AY2024-25, considering that this will be the only capital gains transaction
during the FY2023-24?

Answer:
LTCG Rs 46,767 at 20% and STCG Rs 32,395 at slab rate

Solution:

Amount invested in June 2019 at NAV of Rs 16.563 ₹ 2,00,000

₹ 16.563

Units allotted 12,075.107

Amount invested in June 2020 at NAV of Rs 17.175 ₹ 2,00,000
NAV ₹ 17.175

Units allotted 11,644.833

Amount invested in June 2021 at NAV of Rs 18.824 ₹ 2,00,000
NAV ₹ 18.824

Units allotted 10,624.734

As per the capital gains rules u/s 112 in respect of securities
being Mutual Fund schemes having more than 65% allocation
to debt securities and acquired on or before 31st March 2023,
the LTCG at indexed cost is applicable for holding period
beyond 3 years.
CII 2023-24 348
CII 2019-20 289
CII 2020-21 301
Redemption NAV on 4-Jul-2023 ₹ 21.873
Redemption value of June 2019 acquired units ₹ 2,64,119
(Less) indexed cost of acquisition ₹ 2,40,830
LTCG ₹ 23,288
Redemption value of June 2020 acquired units ₹ 2,54,707
(Less) indexed cost of acquisition ₹ 2,31,229
LTCG ₹ 23,478
Total LTCG ₹ 46,767
STCG on units acquired in 2021 (less than 3 years) ₹ 32,395

25