SVKM’s NMIMS

Anil Surendra Modi School of Commerce

BBA Sem: VI Total Marks: 50

Subject Name: Financial Planning and Wealth Management

No. of Hours: 2 (Two)

Notes:

a) All questions are compulsory

b) Step by Step working is compulsory for all Numeric questions
b) Maximum marks are indicated in each worksheet
c) Answers to each question is to be solved in the same worksheet itself and in the same Excel file itself
d) The Ms Excel file containing your answers should be UPLOADED as per instructions of the Examination department and Invi
e) Students should save their files regularly during the exam
f) Normal and Scientific Calculators only are allowed, all others not allowed
g) Please download the Excel file on desktop, solve the paper and then uploaded the downloaded file as per instructions by
ination department and Invigilator

d file as per instructions by the exam department

Q. 1 Ms. Nandini (Reference Date: 1st April, 2018)

Ms. Nandini, aged 32 years, is employed in a Mumbai-based firm. She has a son Rahul age
children after the sad demise of her husband. She is currently residing in a rented house.
service at her age of 60 years. She shares the following financial information with you:
Salary income (2018- Amount
19) (Rs. Lakhs p.a.)
Basic Salary 35
DA 7.5
HRA 4

Amount
Regular outgoings
(Rs. p.m.)
Basic Household expenses 30,000
Services availed 10,000
School fees 10,000
House Rent 50,000
Power, Telecom, Fuel 10,000

Outgoings towards Amount

investment and
insurance (Rs.)
Equity Mutual Funds1 30,000 (SIP)
Debt Mutual Funds 2
10,000 (SIP)
Insurance Premium3 35,000
Health Insurance
37,731
Premium4
Car Insurance Premium 9,638

Assets Amount
(valued as on Mar 31,
(Rs. in lakhs)
2018)
Equity Mutual Funds 15.45
Debt Mutual Funds 3
Equity shares in Demat
5
A/c
ELSS5 2.5
PPF A/c6 12
Gold & Diamond Jewellery 9.7
Car 12
Bank A/c (Salary) 5
Fixed Deposits7 12
Deposit with house owner 4

Important points to be considered:

1
Diversified open-ended growth equity schemes; started 5 years ago with initial investmen
2
Long-term long duration debt schemes with growth option, started 2 years ago, initial inv
3
Total Cover Rs. 2 crore across two policies of Rs. 1 crore each, all term plans having cove
4
Total cover Rs. 20 lakh on two policies, one is floater Rs. 10 lakh cover, the other in Nand
5
Invested Rs. 1 lakh in each of the previous three financial years in March every year
6
Account opened in March 2011

7
Six Fixed Deposits each of Rs. 2 lakh at 7.5% p.a. interest, maturing on 1st date of month
20th October 2017 on weekly intervals

You, in consultation with Nandini, have crystallized the following financial goals, for which
1. Purchase a house in the next five years costing currently Rs. 2.5 crore; provide for own
2. Create a pool account and manage the same to plan for basic education of both childre
Rs. 1 lakh p.a. thereafter till age 18, such expenses escalate at 10% p.a.
3. Create a corpus for higher education of both children at their respective age of 18 year
4. Create a corpus for marriage of both the children tentatively at their respective age of 2
5. Retirement Corpus for post-retirement income stream equivalent to 70% current expen
lump sum Rs. 2 crore to her children when Nandini attains 78 years of age.

Life Parameters: Nandini’s expected life – 80 years

Assumptions regarding pre-tax returns on various asset classes:

Equity & Equity MF
15.00% p.a.
schemes/ Index ETFs
Balanced MF schemes 10.00% p.a.
Bonds/Govt. Securities/
7.50% p.a.
Debt MF schemes
Liquid MF schemes 6.00% p.a.
Gold & Gold ETF 7.50% p.a.
Real Estate appreciation 10.00% p.a.
Bank/Post Office Term
7.50% p.a.
Deposits ( > 1 year)
Public Provident
8.00% p.a.
Fund/EPFO

Assumptions regarding economic factors:

1) Inflation : 5.00% p.a.
2) Expected return in Risk free instruments : 6.50% p.a.

Questions:

1. Nandini wants to make an arrangement so that she receives a fixed income equivalent
earning at the age of 60 years. Post retirement she will require 70% of her current expens
know what approximate lump sum amount she is required to invest in risk free instrumen
calculation, take expenses on annual basis.(Gift for children at age 78 to be ignored) Assu
 2. Nandini’s retirement corpus as envisaged needs to be accumulated by considering only
80:20 in Equity:Debt for 10 years. Subsequently, the accumulated amount in asset allocat
next 15 years. At this stage, the accumulations in equity, debt and Demat account are red
used for drawing retirement expenses. Cumulative monthly investments maintained up to
monthly investment is required? Assume End Mode

3. Nandini wants to create a pool account of equity and debt mutual fund to manage Rach
today suitable lump sum from Equity to Debt schemes so that Debt schemes withdrawal o
education expenses of Rachana. After 5 years, you again switch from Equity to Debt schem
utilize the remaining balance in Equity schemes to meet in one lump sum Rachana’s high
beginning of the year. What incremental SIP in Equity MF schemes needs to be started im
the year.

Solution:
e has a son Rahul aged 9 years and a daughter Rachana aged 6 years. She is the sole guardian of her
g in a rented house. She wants to have a proper financial plan for her family. She has plans to retire from
rmation with you:

with initial investment of Rs. 50,000; monthly SIP

years ago, initial investment of Rs. 1 lakh; monthly SIP
m plans having cover up to Nandini’s age of 55 and 60 year respectively; annual premium
er, the other in Nandini’s name; annual premium
arch every year

on 1st date of months from April to September 2018, all deposits created from 15th September 2017 to

ncial goals, for which the strategy is to be devised and presented to Nandini:
ore; provide for own funds, transfer and stamp duty expenses to the extent of 40% of market value
cation of both children till their respective 18 years of age; current costs are Rs. 60,000 p.a. till age 15 and
p.a.
ctive age of 18 years; Rs. 32 lakh is the outlay in current terms for each child, such costs escalate at 10% p.
ir respective age of 27 years; marriage costs at Rs. 40 lakh per marriage, escalating at 7% p.a.
o 70% current expenses arrived at by omitting rent and school fees and considering provisions for gifting a
f age.

d income equivalent to two-third of her basic household expenses for the next 28 years till she stops
of her current expenses excluding rent and school fees adjusted to inflation till she is alive. She wants to
n risk free instruments in order to ensure such cash flows from the next month. For the purpose of
8 to be ignored) Assume End Mode
d by considering only the Demat account holding along with a separate asset allocation fund. She invests
mount in asset allocation fund and further monthly investments are rebalanced 20:80 in Equity:Debt for the
emat account are redeemed and transferred to a designated retirement fund yielding 6% p.a. which is
nts maintained up to this period are doubled in the last 3 years up to retirement. What quantum of

und to manage Rachana’s basic education and higher education expenses. For this, you advise to switch
chemes withdrawal on yearly basis is enough to meet next 5 installments (including current year) of basic
Equity to Debt schemes funds equivalent to Rachana’s remaining years’ basic education expenses. You
sum Rachana’s higher education expenses. Consider expenses required for a year to be withdrawn at the
eds to be started immediately to ensure this strategy works? Investments are made in the beginning of
 30 Marks

ardian of her
ns to retire from
ember 2017 to

arket value
.a. till age 15 and

escalate at 10% p.a.

% p.a.
isions for gifting a

ill she stops

e. She wants to
urpose of
und. She invests
quity:Debt for the
p.a. which is
uantum of

advise to switch
ent year) of basic
expenses. You
withdrawn at the
he beginning of
Annuity 1 (32-60)
=2/3 of basic expenses 20000
Annual expenses 240000
Nominal rate 6.50%
Inflation rate 5%
Real rate 1.4285714285714200%
PV of expenses (32-60) ₹ 5,506,705.91

Inflation adjusted expenses at 137,205

Annual expenses 1646454.23815263
PV of expenses at 60 ₹ 28,467,423.64
PV of expenses at 32 ₹ 4,881,565.79

PV of expenses at 32 ₹ 10,388,271.69

Linked to goal 5 5. Retirement Corpus for post-retirement income stream equivalen

Current Age
Step 1. Retirement Corpus
RA
LE
PV of expenses from 60-80
Current expenses at Age 32
Expenses at 60

Nominal monthly rate

Inflation monthly rate
Real rate pm
PV of expenses (60-80)
Gift at 78
PV of Gift at 60

Total rc at RA
 DEMat at t
demat at t+25
demat at t+28 (FV of demat at RA)

Balance RC (FV of asset allocation)

Assume 1x is invested per month

Equity
Debt
FV of equity at t+10
FV of debt at t+10
Total Corpus
Rebalancing
EQUIty
debt
new equity annuity
new debt annuity
FV of equity at t+25
FV of debt at t+25

Total corpus at t+25

Corpus at t+28

Monthly investment needed

Linked to goal 2 and 3 Current Age

Next 5 years (including CY)
Withdrawals from debt schemes

Current costs
no of years
pv of expenses today
Current balance in debt scheme
Deficit
Current balance in equity scheme
Debt balance currently at t (6)

Equity abalance (6)

Five years later Rachana will be 11

Years of basic education
No of years
Expenses at age 11
PV of expenses (11-15) at 11

PV of expenses of (16-17) at 16
Expenses at 16
PV of expenses at 11

Total PV of expenses at 11
Value of debt scheme at 11
Value of equity scheme at 11
FV of debt instalments
FV of equity instalments
Total FV of equity at 11
Total FV of debt at 11
Deficit
TRANSFER FROM EQUITY
EQUITY BALANCE AT 11

Value of higher education at 6

Higher education at 18
Less lumpsum at 11
FV of incremental sip AT 18
pmt (sip)
 p.a
p.a
p.a

=(($Q1.C12+$Q1.C13+$Q1.C16)*(1+5%)^(60-32))*70%

us for post-retirement income stream equivalent to 70% current expenses arrived at by omitting rent and schoo
children when Nandini attains 78 years of age.
32
28
60
80

50,000 first month at 32 0.00407412378364835

137204.519846053 first month at 60 5%

0.5% p.m
0.4% p.m
0.1%
₹ 29,984,209.24
20000000
7006875.82258409

₹ 36,991,085.06
 rates
500,000
16459476.3098948 15% p.a
19603499.6367057 6% p.a

₹ 17,387,585.42

Rates
0.8 x 0.011715
0.2 x 0.006045
₹ 207.98 x =FV(F54,10*12,-D54,,0)
₹ 35.10 x =FV(F55,10*12,-D55,,0)
₹ 243.08 x =SUM(D56:D57)

₹ 48.62 x =D58*20%
₹ 194.47 x =D58*80%
0.2 x
0.8 x
₹ 517.44 x =FV(F54,15*12,-0.2,-D60,0)
₹ 834.65 x =FV(F55,15*12,-D63,-D61,0)

₹ 1,352.09 x =D64+D65

₹ 1,688.84 x =FV((1+6%)^(1/12)-1,3*12,-2,-D67,0)

10295.561846083 =D51/D69

6
6, 7, 8, 9, 10
nominal rate of debt schemes 7.50% p.a Adjusted rate
Escalation rate 10% p.a -2.2727272727272800%
60,000 p.a
5
₹ 314,281.78 (ideal balance in debt scheme today)
300,000 (actual balance in debt scheme)
₹ -14,281.78
1,545,000
 ₹ 314,281.78 (will be used up for 5 instalments)

₹ 1,530,718.22

11,12,13,14,15
5
96630.6
₹ 506,153.95

₹ 524,780.45
259374.24601
₹ 365,540.35

₹ 871,694.30
0
₹ 3,078,821.10
₹ 725,009.99
₹ 2,620,262.25
₹ 5,699,083.35
₹ 725,009.99
₹ -146,684.31
₹ -146,684.31
₹ 5,552,399.04

3,200,000
10042970.8055072 =D116*(1+10%)^12
₹ 5,552,399.04 =D114
₹ 4,490,571.77 =D117-D118
₹ 11,952.77 =PMT((1+15%)^(1/12)-1,12*12,,-D119,1)
by omitting rent and school fees and considering provisions for gifting a lump sum Rs. 2 crore to her
tains 78 years of age.

two investments - demat account , 2) asset allocation

Current balance will grow at givefor first 25 years, two annuities are given
12 first 25 years first 10 years annuity 1
1 next 15 years annuity 2
then corpus will be invested for tnext 3 years (investments are doubled and invested in retirement

FV of investments in Demat

Balance rc (equity-debt FV)

2,-2,-D67,0)

current balance in my vehicle to fulfil this need

60,000
Rs. 2 crore to her

oubled and invested in retirement fund yeildinf 6% p.a

1. Nandini wants to make an arrangement so that she receives a
fixed income equivalent to two-third of her basic household
expenses for the next 28 years till she stops earning at the age of
60 years. Post retirement she will require 70% of her current
expenses excluding rent and school fees adjusted to inflation till
she is alive. She wants to know what approximate lump sum
amount she is required to invest in risk free instruments in order
to ensure such cash flows from the next month. For the purpose of
calculation, take expenses on annual basis.(Gift for children at age
78 to be ignored) Assume End Mode

Not linked to retirement or any other goal

2/3rd Basic Expenses today 20000 =2/3*($Q1.C12)

Annual 240000 =C6*12
PV of Expensesfrom 32 to 60 at 32 $5,506,705.91 =PV((1.065/1.05)-1,(60-32),-C

Post Retirement she wants 70% of Current Expenses (p.m) 137204.5198461 =(($Q1.C12+$Q1.C13+$Q1.C1
Annual 1646454.238153 =C10*12
PV of expenses from 60 to 80 at 60 $28,467,423.64 =PV((1.065/1.05)-1,80-60,-C1
PV of expenses from 60 to 80 at 32 $4,881,565.79 =C12/(1.065)^(60-32)

Total Amount $10,388,271.69 =C8+C13

=2/3*($Q1.C12)

=PV((1.065/1.05)-1,(60-32),-C7,,0)

=(($Q1.C12+$Q1.C13+$Q1.C16)*(1.05)^(60-32))*70%

=PV((1.065/1.05)-1,80-60,-C11,,0)
=C12/(1.065)^(60-32)
2. Nandini’s retirement corpus as envisaged needs to be accumulated by
considering only the Demat account holding along with a separate asset allocation
fund. She invests 80:20 in Equity:Debt for 10 years. Subsequently, the accumulated
amount in asset allocation fund and further monthly investments are rebalanced
20:80 in Equity:Debt for the next 15 years. At this stage, the accumulations in
equity, debt and Demat account are redeemed and transferred to a designated
retirement fund yielding 6% p.a. which is used for drawing retirement expenses.
Cumulative monthly investments maintained up to this period are doubled in the
last 3 years up to retirement. What quantum of monthly investment is required?
Assume End Mode

Expenses at 60 137204.519846053
Monthly Investment 0.00486755056534
Monthly Inflation 0.00407412378365
PV of expenses from 60 to 80 at 60 $29,984,209.24
Gift at 78 20000000
Gift at 60 7006875.82258409

Total RC needed at 60 $36,991,085.06

Demat Account at t 500000

Demat Account at t+25 16459476.3098948
Demat Account at t+28 19603499.6367057

Deficit after Demat $17,387,585.42

Additional Corpus Needed at t+28 - this amount for asset allocation $17,387,585.42

FV of Equity at t+10 $207.98

FV of Debt at t+10 $35.10

Total at t+10 $243.08

FV of Equity at t+25 $517.44

FV of Debt at t+25 $834.65

Total at t+25 $1,352.09

FV at t+28 (at age 60) $1,688.84

Quantum of Investment Needed 10295.561846083

=(($Q1.C12+$Q1.C13+$Q1.C16)*(1.05)^(60-32))*70%
=(1.06)^(1/12)-1
=(1.05)^(1/12)-1
=PV((1.06/1.05)^(1/12)-1,(80-60)*12,-G4,,0)

=G8/(1.06)^(78-60)

=G9+G7

=$Q1.C30*100000
=G13*(1+15%)^25
=G14*(1.06)^3

=G11-G15
=G17

=FV((1.15)^(1/12)-1,10*12,-1*80%,,0)
=FV((1.075)^(1/12)-1,10*12,-1*20%,,0)

=G20+G21

=FV((1.15)^(1/12)-1,15*12,-1*20%,-G23*20%,0)
=FV((1.075)^(1/12)-1,15*12,-1*80%,-G23*80%,0)

=G25+G26

=FV((1.06)^(1/12)-1,3*12,-2,-G28,0)

=G18/G30
3. Nandini wants to create a pool account of equity and debt mutual fund to manage
Rachana’s basic education and higher education expenses. For this, you advise to switch
today suitable lump sum from Equity to Debt schemes so that Debt schemes withdrawal
on yearly basis is enough to meet next 5 installments (including current year) of basic
education expenses of Rachana. After 5 years, you again switch from Equity to Debt
schemes funds equivalent to Rachana’s remaining years’ basic education expenses. You
utilize the remaining balance in Equity schemes to meet in one lump sum Rachana’s
higher education expenses. Consider expenses required for a year to be withdrawn at the
beginning of the year. What incremental SIP in Equity MF schemes needs to be started
immediately to ensure this strategy works? Investments are made in the beginning of the
year.

Current Age 6
PV of Basic Education for 5 years including current year so 6, 7, 8, 9 and 10 $314,281.78
Current Balance in Debt 300000
Shortfall ($14,281.78)

Current balance in equity 1545000

Balance in equity after tranfer to debt $1,530,718.22

After 5 years values in Equity and Debt

FV of Equity after 5 years at age 11 $5,699,083.35

FV of Debt after 5 years at age 11 $725,009.99

PV of education expenses from next years (11, 12, 13, 14, 15) at 11 $506,153.95
Pv of remaining years of basic education ( 16 and 17) at 16 $524,780.45
PV of 16-17 at 11 $365,540.35

Total Expenses at 11 $871,694.30

Shortfall ($146,684.31)

Transfer from Equity $146,684.31

Equity Balance after transfer $5,552,399.04

Value of higher education at 18 10042970.8055

Differential Amount $4,490,571.77

FV of the new SIP to be had at daughter age 18 ( t+12) $4,490,571.77

New SIP to be created $11,952.77

=PV((1.075/1.1)-1,5,-60000,0,1)

=K7-K6

=K10+K8

=FV((1.15)^(1/12)-1,5*12,-30000,-K12,1)
=FV((1.075)^(1/12)-1,5*12,-10000,,1)

=PV((1.075/1.1)-1,5,-(60000*(1.1)^5),,1)
=PV((1.075/1.1)-1,2,-100000*(1.1)^10,,1)
=K22/(1.075)^(16-11)

=K23+K21

=K18-K25

=-K27

=K17-K29

=3200000*(1.1)^12
=K34-K31

=K36

=PMT((1.15)^(1/12)-1,12*12,,-K38,1)
 Q. 2 Answer any 2 out of 3 questions

Mr. Kiran has opened a PPF account in March 2020. For the initial 10 years, he plans to invest
years he plans to invest Rs. 55,000 p.a. semi-annually in end mode. He wishes to extend his
a) he plans to invest the minimum amount p.a at the end of the year. However, for the next 2 b
return of 8.50% p.a. for the first 10 years, 8.25% p.a. for the next 5 years, the return then su
in Mr. Kiran’s PPF account at the end of the total term, if he wants to withdraw Rs. 10 lakhs (t
higher education cost of his child at the end of the 15th year.

Ms. Neha had taken a home loan of Rs. 45 lakhs in January 2018 at a floating rate of interest
b) raising the rate of interest to 11% p.a. effective from January 2019 thereby increasing the EM
processing fee of 0.50% of the loan amount sanctioned. Calculate the absolute amount of sa
February 2019 is refinanced so that the new loan terminates as per the original tenure?

c) What is Financial Planning? Explain the broad areas of Financial Planning?

Solution:

a) Account opened Mar-20

Period Mode Rates applicable AR
First 10 years 150,000 Annually Beg 8.50% 8.50%
FV of PPF after 10 years 2,414,412
Withdrawal 1,000,000
Bal. in PPF after 10 years 1,414,412
Next 5 years 27,500 Semi-annually end 4.04% 8.25%
FV of PPF after 15 years 2,433,232
Withdrawal 1,500,000
Bal. in PPF after 15 years 933,232
First block 500 Annually end 7.2500% 7.2500%
FV of PPF after 20 years ₹ 1,327,158.76
Second Block 12000 monthly end 0.51% 6.2500%
FV of PPF after 25 years ₹ 2,635,997.22
Third Block 12000 monthly end 0.43% 5.2500%
FV of PPF after 30 years ₹ 4,223,255.39
 ars, he plans to invest the maximum permissible amount at the beginning of every financial year. For the next 5
wishes to extend his PPF account thrice after the initial term, each for a block of 5 years. For the first extension
wever, for the next 2 blocks he shall invest Rs. 12,000 per month at the end of each month. PPF expects to give
rs, the return then subsides by 1% for each subsequent block. What will be the accumulated amount available
thdraw Rs. 10 lakhs (then cost) for buying a car at the end of the 10 th year and Rs. 15 lakhs (then cost) for

oating rate of interest of 9.95% p.a. for a tenure of 20 years from Punjab National Bank. The bank sent a notice
eby increasing the EMI. She decides to refinance the loan at 10.50% p.a. from PMC Bank which charges a
bsolute amount of savings in the remaining tenure of the loan, if the outstanding amount as at the end of
original tenure?

g?

b) Loan amt 4,500,000

i 9.95%
tenure 20
EMI ₹ 43,277.01
EMIS paid till January 2019 12
EMIs remaining 228
Outstanding loan amt in Jan 2019 ₹ 4,425,069.92
New rate 11%
New EMI ₹ 46,351.01
EMIs paid till end of feb 2019 2
EMIs pending at the end of feb 2019 226
Oustanding loan as on feb 2019 ₹ 4,413,441.13
Total outstanding loan to be refinanced ₹ 4,435,508.34
New rate 10.50%
New EMI after refinancing ₹ 45,108.29

Absolute savings for the remaining tenure ₹ 280,854.41

EMI to be paid w/o refinancing ₹ 10,475,328.15
EMI to be paid w/ refinancing ₹ 10,194,473.74
 2*10 Marks = 20 Marks

very financial year. For the next 5

of 5 years. For the first extension,
each month. PPF expects to give a
e accumulated amount available
d Rs. 15 lakhs (then cost) for

nal Bank. The bank sent a notice

PMC Bank which charges a
ng amount as at the end of

taken in january 2018

p.a 0.008292 p.m
Total EMIs 240

p.a 0.009167 p.m

p.a 0.00875 p.m