WEALTH MANAGEMENT

PROJECT

FINANCIAL PLAN
FOR
MR. VIPIN CHIMRANI

SUBMITTED TO

PROF. PUNEET DUBLISH

PREPARED BY

DISHA SAXENA

PGDM-M (2018-20)

JN180269

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 ASSUMPTIONS
Certain assumptions taken while preparing this financial plan for Mr. Vipin Chimrani are-

 The financial plan is created based upon current financial conditions and goals
 The average inflation rate taken is 8% p.a.
 Expectation of increase in salary is 12% p.a.
 Children’s education fee is taken at a growth of 10% p.a.
 Other goals increase is 8% p.a.
 Retirement age is 52 years (for both) and annuity rate is taken as 7% p.a.
 Mr. Vipin and his wife are expecting the post retirement life of 25 years each

PERSONAL DETAILS
Name- Mr. Vipin Chimrani

Age- 35 years

Occupation- Software Developer (Samsung)

FAMILY DETAILS

Name Relation Age Occupation

Tanu Saxena Wife 33 Working
Vridhi Daughter 6 Student
Vyom Son 3 Infant

FINANCIAL GOALS
Goal Name Years to Goal Present Cost of Goal Inflation Rate (%)
(Rs.)
Vridhi- Graduation 12 32,00,000 10%
Vyom- Graduation 14 32,00,000 10%
Retirement 17 7,00,000 p.a 8%
Education fund 15 10,00,000 10%
Vridhi- Marriage 20 10,00,000 8%
Vyom- Marriage 25 10,00,000 8%

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Vacation 1 2 5,00,000 8%
Vacation 2 7 5,00,000 8%

INCOME EXPENSE ANALYSIS

INCOME

Sources of Income Amount in Rupees

Monthly Yearly
Salary of Self 1,40,000 16,80,000
Rental Income 17,000 2,04,000
Spouse Income 68,000 8,16,000
Total 2,25,000 27,00,000

Note: It is important to diversify the sources of income so as to reduce the risk. In your case
income is spread across multiple sources, which is good.

EXPENSES

Expenses Amount in Rupees

Monthly Yearly
Household 34,000 4,08,000
Entertainment 5500 6,60,000
Medical 1300 1,56,000
Education 9,500 1,14,000
Travelling 6,000 72,000
Holiday 17,000 2,04,000
Home Loan EMI- Spouse 10,500 1,26,000
Term Insurance Premiums 4,500 54,000
Vehicle Maintenance 3,000 36,000
Vehicle Loan EMI- Self 6000 72,000
Other Expenses 4000 48,000
Total 1,01,300 12,15,600

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INSURANCE & INVESTMENTS

Type Amount (in Rs.)

Monthly Yearly
Investments (PPF + MF SIP) 41,505 4,98,060
Life Insurance Premium (excluding term) 21,430 2,57,160
General Insurance Premium 16270 1,95,240
Total 79,205 9,50,460

SAVINGS

Based on the income and expenses value the client is saving,

(27,00,000 – 12,15,600) / 27,00,000 = 54.97% = approx. 55%

The average savings of an Indian household is around 30% of the household income. In this case,
the savings rate is much higher.

Total Savings (Rs.) = 27,00,000 - 12,15,600 = 14,84,400

Part of savings you are currently investing (Rs.) = 9,50,460

Part of savings available to invest (Rs.) = 14,84,400 – 9,50,460 = 5,33,940

RISK PROFILE
My client is an ‘Aggressive Investor’, as known through my interaction with him.

He is ready to take high risks so as to generate high return. His primary goal is growth of capital.

As he is willing to take high risk so he should invests in Equity.

According to him, he has invested, of his total assets:

 65% in Debt
 30% in Equity
 5% cash

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But based on the risk profile, my suggestion would be:

 68% in Equity
 22% in Debt
 10% cash

NETWORTH
Assets Liabilities
Asset Type Amount (Rs.) %age Liability Type Amount (Rs.)
Fixed Assets 1,19,25,000 75% Regular expenses (also life 600000
insurance premium)
Financial Assets 34,25,500 21% One time future expenses (after 5000000
10 years) (future value)
Other Assets 6,00,000 4% One time current expense 1300000
Total 1,59,50,500 100% Total 69,00,000

Financial Assets
Equity 10,27,650 30%
Debt 22,26,575 65%
Cash 1,71,275 5%
Total 34,25,500 100%

GOALS
 VACATION 1-
Present Cost (PV) = Rs. 5,00,000
No. of years (n) = 2
Rate (r) = 8% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 5,00,000*{(1+0.08)^2}
= Rs. 5,83,200

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  VACATION 2-
Present Cost (PV) = Rs. 5,00,000
No. of years (n) = 7
Rate (r) = 8% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 5,00,000*{(1+0.08)^7}
= Rs. 8,56,912.13

 VRIDHI GRADUATION-
Present Cost (PV) = Rs. 32,00,000
No. of years (n) = 12
Rate (r) = 10% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 32,00,000*{(1+0.1)^12}
= Rs. 1,00,42,970.81

 VYOM GRADUATION-
Present Cost (PV) = Rs. 32,00,000
No. of years (n) = 14
Rate (r) = 10% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 32,00,000*{(1+0.1)^14}
= Rs. 1,21,51,994.67

 VRIDHI MARRIAGE-
Present Cost (PV) = Rs. 10,00,000
No. of years (n) = 20
Rate (r) = 8% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 10,00,000*{(1+0.08)^20}
= Rs. 46,60,957.144

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  VYOM MARRIAGE-
Present Cost (PV) = Rs. 10,00,000
No. of years (n) = 25
Rate (r) = 8% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 10,00,000*{(1+0.08)^25}
= Rs. 68,48,475.196

 EDUCATION FUND-
Present Cost (PV) = Rs. 10,00,000
No. of years (n) = 15
Rate (r) = 10% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 10,00,000*{(1+0.1)^15}
= Rs. 41,77,248.169

GOALS ANALYSIS & SUGGESTIONS

 For vacation 1, my suggestion would be to reduce the value from 5 lakhs to 3 lakh as
sufficient surplus will not be collected in just two years. If this is not done so then it may
create burden on the pockets of the bread gainer.
Thus Vacation 1-
Present Value (PV) = Rs. 3,00,000
No. of years (n) = 2
Rate (r) = 8% p.a

Future Value (Rs.) = PV*{(1+r)^n}

= 3,00,000*{(1+0.08)^2}
= Rs. 3,49,920

 For Vridhi’s (daughter) graduation, current investments can be made as such-

Investment 1: Max Life Policy

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 Present Value = Rs. 3,86,000 (PV) + 55,000 p.a
No. of years (n) = 8
Expected rate of return (i) = 8%

Future value of investment:

Present value of annuity (Rs.) = A * [[1 - {1 / (1+i)^n}] / i]
Here,
A = 55,000
So, present value of annuity (Rs.) = 3,16,065.14
Total Present value of investment (Rs.) = 3,86,000 + 3,16,065.14 = 7,02,065.14
Future value of investment (Rs.) = PV*{(1+r)^n}
= 7,02,065.14*{(1+0.08)^8}
= Rs. 12,99,473.577
The maturity value of Max Life Policy needs to be reinvested into debt instruments
generating an average return at 6% p.a till the goal is achieved
So, future value of 3,86,000 (Rs.) = PV*{(1+r)^n}
= 3,86,000*{(1+0.06)^8}
= Rs. 6,15,225.35
Total Future value of Investment 1 (Rs.) = 12,99,473.577 + 6,15,225.35
= 19,14,698.93

Investment 2: Public Provident Fund

Present Value = Rs. 1,10,500 (PV) + 23,000 p.a
No. of years (n) = 10
Expected rate of return (i) = 8%

Future value of investment:

Present value of annuity (Rs.) = A * [[1 - {1 / (1+i)^n}] / i]
Here,
A = 23,000
So, present value of annuity (Rs.) = 1,54,331.87
Total Present value of investment (Rs.) = 1,10,500 + 1,54,331.87 = 2,64,831.87
Future value of investment (Rs.) = PV*{(1+r)^n}
= 2,64,831.87*{(1+0.08)^10}
= Rs. 5,71,752.14

Investment 3: LIC Policy

Present Value = Rs. 4,31,311 (approx..)
No. of years (n) = 1
Expected rate of return (i) = 6%

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 Future value of investment (Rs.) = PV*{(1+r)^n}
= 4,31,311*{(1+0.06)^1}
= Rs. 4,57,189.66

Investment 4: Mutual Fund

Present Value = Rs. 13,00,000
No. of years (n) = 12
Expected rate of return (i) = 12%

Future value of investment (Rs.) = PV*{(1+r)^n}

= 13,00,000*{(1+0.12)^12}
= Rs. 50,64,768.79

Investment PV (Rs.) FV (Rs.) Balance FV to be

achieved (Rs.)
Max Life Policy 3,86,000 (PV) + 55,000 p.a 19,14,698.93 NIL
Public Provident Fund 1,10,500 (PV) + 23,000 p.a 5,71,752.14
LIC Policy 4,31,311 (approx..) 4,57,189.66
Mutual Fund 13,00,000 50,64,768.79

 For Vyom’s (son) graduation, current investments can be made as such-

Investment 1: ICICI Pru Life Policy

Present Value = Rs. 53,000 (PV) + 53,000 p.a
No. of years (n) = 14
Expected rate of return (i) = 8%

Future value of investment:

Present value of annuity (Rs.) = A * [[1 - {1 / (1+i)^n}] / i]
Here,
A = 53,000
So, present value of annuity (Rs.) = 4,36,944.56
Total Present value of investment (Rs.) = 53,000 + 4,36,944.56 = 4,89,944.56
Future value of investment (Rs.) = PV*{(1+r)^n}
= 4,89,944.56*{(1+0.08)^14}
= Rs. 14,39,062.038
The maturity value of ICICI Pru Life Policy needs to be reinvested into debt instruments
generating a return at 6% p.a till the goal is achieved

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 So, future value of 53,000 (Rs.) = PV*{(1+r)^n}
= 53,000*{(1+0.06)^14}
= Rs. 1,19,827.9
Total Future value of Investment 1 (Rs.) = 14,39,062.038 + 1,19,827.9
= 15,58,889.9

Investment 2: Mutual Fund

Present Value = Rs. 22,50,000
No. of years (n) = 14
Expected rate of return (i) = 12%

Future value of investment (Rs.) = PV*{(1+r)^n}

= 22,50,000*{(1+0.12)^14}
= Rs. 1,09,96,002.64

Investment PV (Rs.) FV (Rs.) Balance FV to

be achieved (Rs.)
ICICI Pru Life Policy 53,000 (PV) + 53,000 p.a 15,58,889.9 NIL
Mutual Fund 22,50,000 1,09,96,002.64

 For daughter’s marriage, current investments can be made as such-

Investment 1: Mutual Fund

Present Value = Rs. 2,40,000
No. of years (n) = 20
Expected rate of return (i) = 12%

Future value of investment (Rs.) = PV*{(1+r)^n}

= 2,40,000*{(1+0.12)^20}
= Rs. 23,20,155

Investment PV (Rs.) FV (Rs.) Balance FV to be achieved (Rs.)

Mutual Fund 2,40,000 23,20,155 46,60,957.144 - 23,20,155 = 23,40,802

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  For education fund, current investments can be made as such-

Investment 1: Mutual Fund

Present Value = Rs. 7,65,000
No. of years (n) = 15
Expected rate of return (i) = 12%

Future value of investment (Rs.) = PV*{(1+r)^n}

= 7,65,000*{(1+0.12)^15}
= Rs. 41,87,277.8

Investment PV (Rs.) FV (Rs.) Balance FV to be achieved (Rs.)

Mutual Fund 7,65,000 41,87,277.8 NIL

INSURANCE PLANNING
Income (in Rs. p.a.), A 27,00,000
Current age (years) 35
Retirement age (years) 52
so, the person will work for (years), n 52 – 35 = 17
Inflation rate (IR) 7%
Return on investment (NR) 12%
Existing life insurance policy (Rs.) 2,00,00,000

TO CALCULATE
Insurance needed as per Human Life Value
Approach

Calculating Real Rate

Using formula ((1+NR)/(1+IR))-1
Real Rate, i 0.046728972 4.673

Calculating Present Value of Annuity

Using formula
Annuity factor 1/((1+i)^n) 0.46006356
Present Value A*((1-Annuity factor)/i) 31197527.5

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 Insurance Policy Needed
Using formula Present Value - Existing life insurance policy 11197527.5

GIVEN

Current Age (years) 35

Expectant Age (years) 77
Actual age (years) 42
INFLOW
Source of regular income 2700000
Existing assets

Gratuity 498060
EPF 120000
Shares and debentures 200000
Property 11925000
Life insurance policy 20000000
OUTFLOW
Regular expenses (also life insurance premium) 600000
One time future expenses (after 10 years) (future value) 5000000
One time current expense 1300000
Inflation rate (IR) 7%
Return rate (NR) 12%

TO FIND
Insurance cover needed using Capital Need Analysis

SOLUTION

Calculating Real Rate

Using formula ((1+NR)/(1+IR))-1
Real Rate, i 0.046728972 4.672897
196

Calculating Gap or Deficit

Using formula Regular expenses -
Regular income
Gap -2100000

Calculating Present Value of Gap (Annuity)

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 Using formula
Annuity factor 1/((1+i)^n) 0.146879
678
Present Value A*((1-Annuity factor)/i) -
3833922
7.3

Calculating Present Value of One time future expenses

(Lumpsum)
Using formula future value/((1+i)^n)
Present value of financial goal 2541746.461

Calculating sum of
Present value of gap + Present value of financial goal + -34497480.83
One time current expenses

Insurance Needed -67240540.83

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