CASE STUDY CONTEST

JOINT CERTIFICATION PROGRAM(JCP) ON MANAGING PERSONAL FINANCE

PRESENTED BY: RAJ KUMAR VERMA

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CASE

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Questions:

1. Identify the major strengths and weaknesses.

2. Do you think Sudhirs goals are realistic? Does he need to postpone his goals? How should Sudhir plan to meet his goals, according to you? 3. What should be the ideal asset allocation strategy for Sudhir, given that hes young and has no dependents currently? 4. What would you recommend Sudhir on creation of emergency

fund and taking insurance (life and medical both)?

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Flow Chart of Case Study

Assumptions Financial Situations Feasibility of Goals Questions-

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Assumptions
As Sudhir is only 23 years old and has no dependents, his risk taking ability is high(i.e. high risk appetite). ELSS Mutual Fund gives more than 12% p.a. return. Needed Medical cover but no need of Life Insurance as currently he has no dependents. Considered inflation @ 6% p.a. Income is increasing at the rate of 10% p.a. Blue-chip stocks, Large-cap Stocks and Mid-Cap Stocks Gives returns at the Rate of 15%, 20% and 30% p.a. respectively. Assumed that Sudhir's Expense can be lower by Decreasing the Expenses on House Holdings and Entertainment Because He has no dependents.
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Financial Situation
Current:
Income and Expenditure Statement Expense To
Household Education loan Entertainment Medical Holidays Professional expenses Travel

Amt.(Rs.) 144000 60000 60000 5000 25000 50000 30000 374000

Income By Annual Income

Amt.(Rs.) 500000

Total Expense

Total Income Annual Surplus

500000 -374000 126000

Savings bank account balance: Rs.20,000 Mutual Fund ELSS Rs.50,000 Education loan: Rs.3,50,000

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Goals:
Name of goal
Purchase a House New Vehicle Start a business

Current value
Rs. 70,00,000 Rs. 6,00,000 Rs.20,00,000 FV(Rs.)

Years to goal 3 1 4

Goals :
Purchase a House New Vehicle Start a business

PV ( Rs. )
7000000 600000 2000000

1 7420000 636000 2120000

2 7865200 674160 2247200

3 8337112 714610 2382032

4 8837339 757486 2524954

Years Growth in Annual Income @ 10%(Rs.) Growth in annual Expense @ 6%(Rs.) Tax Payable Annual Surplus

10

500000
374000 25518 100482

550000
396440 30846 122714

605000
420226 42524 142250

665500
445440 55443 164617

732050
472166 69671 190213

805255
500496 85340 219419

885781
530526 102596 252659

974359 1071794 1178974

562358 121601 290400 596099 146850 328846 631865 181433 365676

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Feasibility of Goals
Goal is Not Realistic Goals need more time to be realistic.

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Change In Financial situation after Corrections in Expenses

Case-1

Case-2

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Case-1
1400000 1200000 1000000 800000 600000 400000 200000 1400000 1200000 1000000 800000 600000 400000 200000 0 1 2 3 4 5 6 7 8 9 10

Case-2

0
Years Growth in Annual Income @ 10%(Rs.) Growth in annual Expense @ 6%(Rs.) Annual Surplus

10

Years Growth in Annual Income @ 10%(Rs.) Growth in annual Expense @ 6%(Rs.) Annual Surplus

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QUESTIONS

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 Identify the major strengths and weaknesses.

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Strengths:
He is independent. High Risk Appetite.

Weaknesses:
Low Income to meet with goals aggressively. Goals are very Aggressive. Short Time Period allotted for Goals. No Fixed Assets and other source of income available to Sudhir. Education loan.

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 Do you think Sudhirs goals are realistic? Does he need to postpone his goals? How should Sudhir plan to meet his goals, according to you?

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 The Goals are not Realistic. Because Goals are not matching with current financial situations of Sudhir, as annual surplus and assets are not sufficient to meet his goals in such a short span of time.

He needs to Postpone his Goals because his financial projection is not matching with the targeted goal periods.

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 Sudhir Should prioritize his goals with extended time period. So he can enough surplus money to meet his goals.

Goals Prioritization: Primary goal to Buy Vehicle(2-3years). Secondary Goal Should be Start a Business(6-7years). Then he should go for Purchase of House (9-10years).

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 What should be the ideal asset allocation strategy for Sudhir, given that hes young and has no dependents currently?

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Asset Allocation
Equity Debt Cash 70% 20% 10%

Cash, 10% Debt, 20% Equity, 70%

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Equity Allocation:

Equity Allocations Contribution of Stocks Expected Returns

Blue-Chip Stocks
Large-Cap Stocks Mid-Cap Stocks

50%
30% 20%

15%
20% 30%

Equity Allocations
Blue-Chip Stocks Large-Cap Stocks Mid-Cap Stocks

20% 50% 30%

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 What would you recommend Sudhir on creation of emergency fund and taking insurance (life and medical both)?

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Emergency Funds Allocations

For emergency fund He should go for Cash or Cash equivalent investments like Fixed Income Deposits, Saving Account Balance, etc.

For health he should go for health insurance cover up to 10 L which has premium of Rs. 5000 p.a. approx.

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