NISM Series X-B: Investment Adviser (Level 2) Cert. 'Case Study 4'

1. Kumar, 30 years old, with a life expectancy of 75, works as a project manager for a leading Indian corporate in Ahmadabad for the past 7 years. His wife, Swathi, is 29, with a life expectancy of 80, and is a homemaker. They have two children – Rahul (5 years old) and Narendra (2 years old).

Kumar’s monthly salary details:

1. Basic Salary: Rs. 30,200
2. D.A (part of Salary): 50% of basic salary
3. City Compensatory Allowance: Rs. 300
4. Children Education Allowance: Rs. 200 per child
5. Transport allowance: Rs. 1,000

He pays an annual premium of Rs. 23,900 for his life insurance policies, which include 3 endowment policies and 1 unit-linked policy, providing a total life insurance cover of Rs. 12,00,000. Kumar plans to set aside funds for his children’s higher education expenses, estimated at Rs. 3 lakh each, when they reach the age of 21.

Kumar’s monthly expenditure breakdown:

1. Housing expenses (including travel, holidays, and festivals): Rs. 21,000
2. Personal loan repayments: Rs. 13,200
3. Total: Rs. 34,200

Assumptions for financial planning:

1. Risk-Free Rate of Return: 4% p.a.
2. Rate of Return on Equity: 15% p.a.
3. Rate of Return on Debt (above 5 years): 9% p.a.
4. Inflation: 4% per year.

Q)Considering that he meets an immediate unforeseen event, Kumar would like to provide his family an amount of Rs. 6 lakh p.a., inflation linked, till Swathi is alive. What approximate amount of life insurance should Kumar be covered for if the proceeds of such a cover would be invested in long term debt and long term equity in the ratio 90:10.

2.

Kumar, 30 years old, with a life expectancy of 75, works as a project manager for a leading Indian corporate in Ahmadabad for the past 7 years. His wife, Swathi, is 29, with a life expectancy of 80, and is a homemaker. They have two children – Rahul (5 years old) and Narendra (2 years old).

Kumar’s monthly salary details:

1. Basic Salary: Rs. 30,200
2. D.A (part of Salary): 50% of basic salary
3. City Compensatory Allowance: Rs. 300
4. Children Education Allowance: Rs. 200 per child
5. Transport allowance: Rs. 1,000

He pays an annual premium of Rs. 23,900 for his life insurance policies, which include 3 endowment policies and 1 unit-linked policy, providing a total life insurance cover of Rs. 12,00,000. Kumar plans to set aside funds for his children’s higher education expenses, estimated at Rs. 3 lakh each, when they reach the age of 21.

Kumar’s monthly expenditure breakdown:

1. Housing expenses (including travel, holidays, and festivals): Rs. 21,000
2. Personal loan repayments: Rs. 13,200
3. Total: Rs. 34,200

Assumptions for financial planning:

1. Risk-Free Rate of Return: 4% p.a.
2. Rate of Return on Equity: 15% p.a.
3. Rate of Return on Debt (above 5 years): 9% p.a.
4. Inflation: 4% per year.

Q)Mr.Dhananjay (Father of Kumar) wants to gift Rs. 5 lakh to Kumar to buy a house. Kumar wants to know how this receipt will be treated in his hands from Income Tax perspective.

3.

Kumar, 30 years old, with a life expectancy of 75, works as a project manager for a leading Indian corporate in Ahmadabad for the past 7 years. His wife, Swathi, is 29, with a life expectancy of 80, and is a homemaker. They have two children – Rahul (5 years old) and Narendra (2 years old).

Kumar’s monthly salary details:

1. Basic Salary: Rs. 30,200
2. D.A (part of Salary): 50% of basic salary
3. City Compensatory Allowance: Rs. 300
4. Children Education Allowance: Rs. 200 per child
5. Transport allowance: Rs. 1,000

He pays an annual premium of Rs. 23,900 for his life insurance policies, which include 3 endowment policies and 1 unit-linked policy, providing a total life insurance cover of Rs. 12,00,000. Kumar plans to set aside funds for his children’s higher education expenses, estimated at Rs. 3 lakh each, when they reach the age of 21.

Kumar’s monthly expenditure breakdown:

1. Housing expenses (including travel, holidays, and festivals): Rs. 21,000
2. Personal loan repayments: Rs. 13,200
3. Total: Rs. 34,200

Assumptions for financial planning:

1. Risk-Free Rate of Return: 4% p.a.
2. Rate of Return on Equity: 15% p.a.
3. Rate of Return on Debt (above 5 years): 9% p.a.
4. Inflation: 4% per year.

Q)Kumar wants to invest yearly to achieve his goals for his children’s higher education. For accumulation of fund you recommend Kumar to invest in Debt and Equity in the ratio 20:80. What approximate amount should he set aside every year to achieve his said goals. Assume Kumar maintains separate investment accounts for Rahul and Narendra and invests till they turn 21 years of age respectively.

4.

Kumar, 30 years old, with a life expectancy of 75, works as a project manager for a leading Indian corporate in Ahmadabad for the past 7 years. His wife, Swathi, is 29, with a life expectancy of 80, and is a homemaker. They have two children – Rahul (5 years old) and Narendra (2 years old).

Kumar’s monthly salary details:

1. Basic Salary: Rs. 30,200
2. D.A (part of Salary): 50% of basic salary
3. City Compensatory Allowance: Rs. 300
4. Children Education Allowance: Rs. 200 per child
5. Transport allowance: Rs. 1,000

He pays an annual premium of Rs. 23,900 for his life insurance policies, which include 3 endowment policies and 1 unit-linked policy, providing a total life insurance cover of Rs. 12,00,000. Kumar plans to set aside funds for his children’s higher education expenses, estimated at Rs. 3 lakh each, when they reach the age of 21.

Kumar’s monthly expenditure breakdown:

1. Housing expenses (including travel, holidays, and festivals): Rs. 21,000
2. Personal loan repayments: Rs. 13,200
3. Total: Rs. 34,200

Assumptions for financial planning:

1. Risk-Free Rate of Return: 4% p.a.
2. Rate of Return on Equity: 15% p.a.
3. Rate of Return on Debt (above 5 years): 9% p.a.
4. Inflation: 4% per year.

Q)Kumar desires to retire at his age of 55. He intends to arrange for the present housing expenses (inflation linked) after his retirement till Swathis lifetime. For accumulation of retirement corpus Kumar intends to start annual saving with Rs. 35,000 in the first year, and increasing the savings by 8% every year till one year before his retirement. Kumar also estimates to receive Rs 20 lakh from his employer on his retirement. What surplus/shortfall would be available with Kumar at the time of his retirement in such a situation? Assume Kumar’s savings earns him a return of 10% p.a. throughout and investments during his post retirement are also able to fetch similar returns

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