ENCEPHALON - RISCON13 Financial Planning - Case Study Round 2

Assume date as: : January 1, 2013 Mr. Suresh Kohli is a 33 year old Area Manager with Alpine Ltd. in Gurgaon, Haryana. Haryana He is married to Tanya who does freelance work and they have a son Sachin who is 2 years old. They live in a 2BHK rented apartment rtment on the outskirts of Delhi Delhi, with a monthly rental of Rs 18,000. Suresh has signed an agreement with the landlord which states that the rent will increase every 12 months by 9% 9 per annum. His father is s a retired army officer and lives along with them. One fine evening, Suresh was sitting with Tanya and they started discussing Sachin's future needs and their retirement goals. Current Financial Details of Kohli Family Mr. r. Kohlis current annual salary is Rs 11,20,000 (net). He is working with the same company for the past 7 years and is satisfied with his current position. He expects good growth opportunities for himself in the company. He expects a salary growth of 8% annually. His monthly onthly household expense is Rs 50,000. . Familys current healthcare expense is Rs 65,000 per annum which is not expected to change in the foreseeable future future. This includes a monthly health insurance premium taken from ICICI Prudential of Rs 3,700. . Mr Kohli has been investing ng in his PF account ever since he started working for Alpine. The current PF balance of Rs 5,45,500. Every month an investment ment of Rs 8,035 is made towards PF which matches employers contribution. Sachin's Financial Goals High school expenses: Sachin will start school one year from now and will complete school in 2027. 2027 His school expenses per year are expected to be Rs. 60,000 on average and expected to increase by an average rate of 10% % each year. Graduation Fees: Sachin will join college in 2028 and will enrol l in a bachelors program for 3 years. Suresh wants to pay Sachin's college fees using his savings and investment. Education in India will cost Rs. 40,00,000 in future terms the entire amount to be paid in the beginning of the program. program Education abroad will cost Rs. 1 crore in future terms. Post Graduation Expenses: Sachin will enrol in a masters program either in India or abroad. Foreign education will cost him Rs. 2 crores in future terms. Education in India will cost him Rs. 1 crore, crore the entire amount to be paid in the beginning of the program program. Tanya wants her son to pursue masters program from a foreign university i if Sachin completes his bachelors program m from abroad. Sachin has an option to pursue masters from India or abroad only if he decides to pursue pu bachelors from India. Suresh's Financial Goals Suresh and d Tanya always wanted to have their own house. They desire to purchase a new apartment 5 years from now only if they have the financial resources to do so. The house which they are planning to purchase rchase currently costs Rs. 1 crore. Suresh would like to take his family on annual vacations worth Rs. 2 - 2.50 lakhs per year, but this is a very low priority goal and he doesnt mind if he doesnt achieve this.

Suresh wants to purchase a sedan which has a minimum price of Rs. 8 lakhs today. The price of the car is expected to increase by 4% every year. Retirement Goals Suresh will retire at the age of 60 years. He desires to live his life post retirement with his current savings and investments. His monthly household expense after retirement will drop by 40%. The medical expenses will however increase by 30%. Moreover, if Suresh is not able to purchase a house, the rental expense will be borne by his son post Suresh's retirement. Investment Options Suresh wants to invest no more than 30% of his savings in equity. The remaining will be divided between bonds and bank savings account. He wants to keep a minimum of 10% of his savings in the savings account so that he can meet his liquidity needs in event of crisis. Equity Options Direct Investment in Stocks Stock Beta 1.20 1.70 0.80 1.45 Probability of realising the required return 0.75 0.65 0.89 0.56

Stock Stock 1 Stock 2 Stock 3 Stock 4

Expected return on market = 15% Risk free rate = 5% Mutual Funds Expected return on mutual-funds: 13% He will not invest more than 40% of his equity investments in one stock only and he would like to diversify his risk as much as possible. Additional Information Bond Market Returns PF Return Savings Account Rate Inflation 9.50% 7.25% 4% 5%

You have been hired by Suresh to do his financial planning. As an advisor to Suresh, you need to prepare a financial plan containing the details what Suresh should do, where he should invest, at what stage in life and how he should meet his financial goals. You should keep in mind that whatever advice you give to Suresh should give him the maximum level of satisfaction and that he will always prefer Sachin's financial goals over his own.