Personal Financial Planning

End-Term Project

Submitted to:
Prof. S. K. Rai

Submitted By:
Pranav Langer
19P153

Section B

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 Introduction
Personal Financial Planning is a systematic approach whereby an individual maximizes the
existing financial resources through proper management of one's finances to best achieve his/her
financial goals and objectives. Financial planning is a big concept that includes things like
budgeting, retirement planning, saving, insurance, and getting out of debt. Financial planning is
the long-term process of wisely managing your finances to help achieve your goals and dreams,
while at the same time negotiating the financial barriers that inevitably arise in every stage of
life. It is a process which takes into account a varied number of factors to provide a highly
personalized plan for individuals.

In this report, effort has been put in to combine the aspects of finance with personal goals in
order to make a detailed financial plan for myself.

Purpose and Objectives of Study

The objective of this report is to explain the assumptions made, processes undertaken and
analysis carried out to create a lifelong financial plan for Pranav Langer, an MBA graduate who
will just be starting his post-MBA life.

Justification
Every individual presents a unique case when it comes to requiring a financial plan. Their needs,
backgrounds, aspirations and abilities differ, causing financial plan to vary exponentially. Few
people plan in advance for their financial goals, which causes them to make mistakes, resulting
in them not being able to meet goals due to lack of financial resources. Since every individual
has unique financing needs, making a detailed personal financial plan at the outset of one’s
career can help an individual plan very well in advance and reduce the probability of facing
financial distress unless black swan events occur.

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 Assumptions
While creating the financial plan, some assumptions were taken with regards to the number of
dependents, anticipated retirement age, expected life-span post-retirement and his investment
style.

Retirement Age     50 years    

Expected Life Span Post-retirement 20 years    
               
               
Investment Profile            
  Risk Capacity   Moderate      
               
List of
Assumptions            
               
On Budget Related Items          

  Current Monthly Salary 1,20,000.00      

  For simplicity the variable component has not been considered    

  Total EPF Contribution 12.00% 28,800.00 pm 3,45,600.00 pa

    By the Subject 14,400.00 pm 1,72,800.00 pa

    By the employer 14,400.00 pm 1,72,800.00 pa

               
On General Growth Rates          
2031
  Year     2021 onw. onw. 2041 onw.  
  Age     26 onw. 36 onw. 46 onw.  
  Inflation     4.80% 4.80% 4.80%  
  Growth Rate of Salary   8.00% 5.00% 3.00%  
  Growth Rate of Expenses 7.00% 7.00% 7.00%  
               
On Average Gain in
Investments          
2031
  Year     2021onw. onw. 2041 onw.  
  Age     26 onw. 36 onw. 46 onw.  
  Fixed Deposits   6.00% 6.00% 6.00%  
  PPF     8.00% 8.00% 8.00%  
  Common Stock   10.00% 10.00% 10.00%  
  MF-Stocks     9.00% 9.00% 9.00%  
  Corporate/Govt. Funds 7.50% 7.50% 7.50%  

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  Provident Funds   7.50% 7.50% 7.50%  
  Pension Corpus Fund   7.00% 7.00% 7.00%  
  Gold ETF     5.00% 5.00% 5.00%  
               
On Division of Disposable Income among various Investment classes    
2031
  Year     2021 onw. onw. 2041 onw.  
  Age     26 onw. 36 onw. 46 onw.  
  Fixed Deposits   10.00% 10.00% 10.00%  
  PPF     18.00% 18.00% 18.00%  
  Common Stock   10.00% 10.00% 10.00%  
  MF-Stocks     30.00% 30.00% 30.00%  
  Corporate/Govt. Funds 20.00% 20.00% 20.00%  
  Provident Funds   12.00% 12.00% 12.00%  
  Pension Corpus Fund   0.00% 0.00% 0.00%  
  Gold ETF     0.00% 0.00% 0.00%  
  Total     100.00% 100.00% 100.00%  

Goals Planning & Analysis

Goal 1
Emergency Fund
20% of income set apart
Amount: every year to build corpus
Accomplished by :

Goal 2:
Car
Cost: 7,00,000
Accomplished by: Y1
10,29,0
Investments value at beginning 51
3,29,0
Balance after accomplishment 51

Goal 3:
House Y7
100,00,0
Contribution: 00
20,00,0
Downpayment: 00
7,30,8
EMI 29
Investments value at 53,55,8

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beginning 96
Balance after 33,55,8
accomplishment 96

Goal 4:
Kid 1's education fund

Accumulate corpus of: 15,00,000

Accomplished by: Y7
Investments value at
beginning 33,55,896
Balance after
accomplishment 18,55,896

Goal 5:
Kid 2's education fund
Accumulate corpus of: 15,00,000
Accomplished by: Y10
Investments value at
beginning 61,36,350
Balance after
accomplishment 46,36,350

Goal 6:
Self- Higher Education
Amount 20,00,000
Accomplished by: Y10
Investments value at
beginning 46,36,350
Balance after
accomplishment 26,36,350

Goal 7:
Self - Vacation
Amount 20,00,000
Accomplished by: Y12
Investments value at
beginning 56,27,384
Balance after
accomplishment 36,27,384

Goal 8:

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 Parent's vacation
Amount 20,00,000
Accomplished by: Y15
Investments value at
beginning 127,87,886
Balance after
accomplishment 107,87,886

Goal 9:
Holiday home
Amount 400,00,000
Accomplished by: Y25
Investments value at
beginning 795,50,478
Balance after
accomplishment 395,50,478

Goal 10:
Super Bike
Amount 10,00,000
Accomplished by: Y10
Investments value at
beginning 61,36,350
Balance after
accomplishment 51,36,350

Goal 11:
Kids Higher Education
Amount 200,00,000
Accomplished by: Y25
Investments value at
beginning 395,50,478
Balance after
accomplishment 195,50,478

Asset Allocation
Based on my risk profile as a Moderately Aggressive investor; I am fairly comfortable investing
across asset classes. This risk profile, when combined with basic liquidity requirements for
investments, helps us come to a suggested asset allocation style :

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 Asset Allocation
Cash 10%
Equity 45%
Debt 45%

Within debt; I will invest a fixed salary on PF funding, whereas the rest of the allocation to debt
annually, can be in other debt instruments such as debt mutual funds. This allocation to other
debt instruments increases linearly with salary increases as PPF contributions are a fixed rupee
amount.

Within equity, I would be investing minimally in equity linked instruments (for tax purposes)
and mutual funds. The rest of the assets under the equity allocation would be directly invested
into public markets; in both large cap/blue chip companies and small cap companies via careful
stock selection and value investing principles.

Buy v/s Rent

The decision of owning a house – buying v/s renting, is one of the most critical ones facing
individuals today. The magnitude of the decision is compounded due to various factors such as:

 The corpus of investment required for buying a house (in terms of downpayment)

 Illiquidity of the investment asset

 Volatility in housing prices

 The decision of whether the house should be bequeathed to successors

Thus, it becomes imperative to analyse this goal in isolation, in order to provide proper analysis
and planning for home ownership.

I wish to own a house in Bangalore. Based on the requirements being a 2BHK, a good
approximation for the size of the house would be 1000 sq. ft. I do not plan to sell the house in
the future and will instead pass it on to his successors.

In order to analyse whether I should buy an apartment, or continue to live in a rental place, the
following factors were considered:

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 City Bangalore
Location
Price / Sq ft: 20,000
Apt. Size (sq ft) 1,000
Total Price: 2,00,00,000
Inflation: 3%
Downpayment % 20%
Duty % 4%
# Apts in society 200
Loan Tenure (yrs) 30
Max tax rebate 2,00,000
Tax rate 30%
Opp. Cost rate 7%

Current Monthly Rent / sq.ft 83.30

The analysis was done for Year 7, the year in which the client plans to buy a house. For the
analysis, the cash outflows from buying the house – mortgage repayment, down payment, duty
and cash inflows – tax rebate, were compared to the interest foregone due to mortgage
repayment (opportunity costs), which was then considered as a cash inflow if I rented the
house.

Thus, the cash flows considered were:

a) Buying:

a. Cash inflow: Tax rebate

b. Cash outflow: Down payment, duty, mortgage repayments

b) Renting:

a. Cash inflow: Interest foregone on mortgage repayment

b. Cash outflow: Rent paid

The difference of the net cash flows from both scenarios were compared and the present value
of this difference was calculated at Year 7, to complete the analysis. Based on these
calculations along with numerous qualitative factors like convenience and the personal
preference and satisfaction of owing a house, it was concluded that I should prefer buying a
house over renting one.

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 Insurance Planning

Insurance planning helps transfer unforeseen risk from the client to the insurance provider. In
the detailed financial plan, insurance of mainly 2 kinds: health and life has been considered and
accounted for.

Life Insurance

The risk of permanent loss of family income due to premature death is one of the primary
reasons for purchasing life insurance, and the severity of that loss makes life insurance an
integral part of a risk management strategy. Purchasing life insurance effectively converts the
uncertainty that a person may not be able to meet all financial obligations, in the event of a
possible misfortune; into the certainty that these financial obligations will be fulfilled.

Based on the requirements of the client, the life insurance policy suggested is a term policy,
since the client will be using insurance to cover for future uncertainty, and not as a savings
vehicle. It is further recommended that I should avail of a level premium term policy of
upto 85 years, based on his life expectancy and mortality expectations.

A quick brief on insurance need analysis estimation:

Insurance need analysis estimation was carried out at a very granular level in a three step
process:

1. Based on the investor’s monthly income levels, income replenishment needs are estimated
and income available to the investor’s family is calculated as a % of current gross. The
balance is termed as shortage and determined over the investor’s life on an annual basis.

2. The number of years to provide annual gross shortage is deducted sequentially and multiplied
with (1) to estimate capital requirement

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3. Immediate shortfalls / needs are added back and the present value of the same is estimated
using an appropriate discount rate to estimate current life insurance needs

Health Insurance

Health insurance provides protection against financial losses caused by illness, injury and
disability. It represents one of the most complicated forms of insurance. These policies are of
various sizes and forms and are thus difficult to analyse. This, before selecting a health
insurance plan, it is recommended to analyse what kind of protection would be required by the
client.

Based on my income stream, age, and other factors, it is recommended that I avail a
Comprehensive Health Insurance plan.

Net Worth

I have a very conservative view towards loan, and thus will not be interested in taking any home
loan or car loan.

As per my plan, I plan to pay upfront whether for a car or for my apartment. Even though it may
delay the purchase but I will not be taking a loan to fulfil my desires.

WILL – DEED

I Shri. Pranav Langer S/o. Pranav Langer residing at Chandigarh aged about 80 years Hindu by religion,
occupation Manager do make this my last will and testament.

1. I have not made any will or other testamentary document, but if any made, I hereby revoke all
previous wills and codicils, if any and declare this to be my last will and testament.

2. I appoint
3. (1) Sri. Akhil Gottipati S/o. Venu Gottipati residing at Vishakhapatnam about 70 years Hindu by
religion, occupation Manager
(2) Smt. Jahnavi Budur D/o. Vasundhara Budur residing at Hyderabad about 56 years Hindu by
religion, occupation Manager
(3) Smt. Sylvia George D/o. Celine George residing at Kerala about 65 years Christian by religion,
occupation Manager as the executor of this will and trustees of my estate.

4. My family consists of
Father: Pranav Langer

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 Mother: Anuradha Gupta
Wife: AAA

5. My property consists of
a. House in Chandigarh
b. Land in Chandigarh
c. 2 Cars

6. I bequeath all my property in whatever form existing at the time of my death to the said
executor and trustees to hold the same on trust for the benefit of my wife Smt. AAA for her life
time and till her death as herein after provided.

7. My executors and trustees shall, after spending the necessary money for the management of
the said property out of the income thereof, pay the net income to my wife and the same will
belong to him absolutely without liability to account for the same. My executor and trustees will
also spend out of the corpus of estate such amounts as may be required by my wife for medical
expenses or for pilgrimage. But my executor and trustees will not be entitled to sell my
immovable property above mentioned or mortgage the same.

8. On the death of my wife and if she predeceases me then on my death all my estate then existing
whether mentioned in this will or not, will belong to my children,
a. XXX
b. YYY absolutely in equal shares and the trustees for the time being of the said estate
under this will shall transfer the same among said children by executing proper
document or documents.

9. Provided that, if at the time of death my wife or myself as the case may be any of the said
children is a minor, the trustees shall hold the said property on trust until the youngest attains
the age of majority and till then the net income of the said property will be given or spent for
maintenance and education of the said children.

10. My executor and trustees shall obtain probate of this will from a competent court, if required in
law and shall pay all the probate duty and other expenses required for such probate and also
pay as first charge all my other liabilities by way of taxes or otherwise howsoever.
11. I have made this will out of my free will and when I am in sound health and in good
understanding and in witness thereof I have put my signature hereunder in the presence of
witnesses on this 28th day of February month of 2021 year.

Signed by the within named testator

Shri. Pranav Langer

opposite in the presence of witnesses,

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who in presence and at her request and

in the presence of each other have put

their signature as witnesses hereunder.

1. Sri. Naveen
Full Address: OO
2. Smt. Nishtha
Full Address: OO

Conclusion
Based on the detailed plan made and financial and qualitative analysis undertaken, the
aforementioned financial plan is recommended for me. The plan makes it dynamic for all goals
to be tweaked and investments to be modified to be limited within the realms of practicality and
in line with the aspirations of the investor. A well planned investment outlay allows the investor
to comfortable meet his future needs and fulfil his desires to a reasonable extent resulting in
personal happiness through wealth creation.

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