Wealth Management and Alternate

Investments
End Term Project Report

Submitted to -
Prof. Vinay Kumar Dutta
Submitted by –
Sakshee Singh (281183)
 Table of Contents

Table of Contents 2
Introduction 3
Literature Review 8
Client Profile 11
Owner’s Description 12
Ratio Analysis 16
Risk Profiling 19
Investment Planning – SMART Goals 23
Problems in achieving goals and 30
recommendations
Periodic review and updates 31
Learnings 33
References 35
INTRODUCTION

Wealth Management

Wealth Management is an emerging field that combines the clients’ understanding of

wealth and its correlation with financial decision- making processes. Human beings
are generally susceptible to numerous behavioral anomalies, which become counter-
productive to the wealth- maximization principle leading to irrational behavior. Some
of these are:

To over weigh the present and near future over the distant future, which leads people
to not save enough for retirement, or to take on too much debt

To be excessively optimistic, downplaying the extent to which bad things will happen-
leading people to think they don’t need life insurance, or that they aren’t at risk of
crashes in the stock market

There’s also confirmation bias—the tendency to ignore when someone tells you
something you don’t want to hear and find inconvenient to change

Lastly, there’s loss aversion— the average person experiences a loss two to three times
more acutely than a gain of comparable magnitude

WEALTH MANAGEMENT AND FINANCIAL PLANNING

According to Financial Planning Association "Financial planning is the process of

wisely managing one's finances to achieve certain goals and dreams, while at the same
time helping negotiate the financial barriers that inevitably arise in every stage of life.
The financial planning profession exists to help people make those financial decisions
and achieve their life goals."

SIX KEY AREAS OF FINANCIAL PLANNING

Six key areas of personal financial planning, as suggested by the Financial Planning
Standards Board, are:

1. Financial Position:

This area is concerned with understanding the personal resources available by

examining net worth and household cash flow. Net worth is a person's balance sheet,
calculated by adding up all assets under that person's control, minus all liabilities of
the household, at one point in time. Household cash flow totals up all the expected
sources of income within a year, minus all expected expenses within the same year.
From this analysis, the financial planner can determine to what degree and in what
time the personal goals can be accomplished.
2. Adequate Protection:

The analysis of how to protect a household from unforeseen risks. These risks can be
divided into liability, property, death, disability, health and long-term care. Some of
these risks may be self-insurable, while most will require the purchase of an insurance
contract. Determining how much insurance to get, at the most cost-effective terms
requires knowledge of the market for personal insurance. Business owners,
professionals, athletes and entertainers require specialized insurance professionals to
adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing
insurance investment products may be a critical piece of the overall investment
planning.

3. Tax Planning:

Typically, the income tax is the single largest expense in a household. Managing taxes
is not a question of if you will pay taxes, but when and how much. Government gives
many incentives in the form of tax deductions and credits, which can be used to reduce
the lifetime tax burden. Most modern governments use a progressive tax. Typically, as
your income grows, you pay a higher marginal rate of tax. Understanding how to take
advantage of the myriad tax breaks when planning your personal finances can make a
significant impact upon your success.

4. Investment and Accumulation Goals:

Planning how to accumulate enough money to acquire items with a high price is what
most people consider to be financial planning. The major reasons to accumulate assets
is for the following: a - purchasing a house b - purchasing a car c - starting a business
d - paying for education expenses e - accumulating money for retirement, to generate
a stream of income to cover lifestyle expenses.

Achieving these goals requires projecting what they will cost, and when you need to
withdraw funds. A major risk to the household in achieving their accumulation goal is
the rate of price increases over time, or inflation. Using net present value calculators,
the financial planner will suggest a combination of asset earmarking and regular
savings to be invested in a variety of investments. In order to overcome the rate of
inflation, the investment portfolio has to get a higher rate of return, which typically
will subject the portfolio to a number of risks. Managing these portfolio risks is most
often accomplished using asset allocation, which seeks to diversify investment risk and
opportunity. This asset allocation will prescribe a percentage allocation to be invested
in stocks, bonds, cash and alternative investments. The allocation should also take into
consideration the personal risk profile of every investor, since risk attitudes vary from
person to person.

5. Retirement Planning:

Retirement planning is the process of understanding how much it costs to live at

retirement, and coming up with a plan to distribute assets to meet any income
shortfall.
6. Estate Planning:

Involves planning for the disposition of your asset when you die. Typically, there is a
tax due to the state or federal government at your death. Avoiding these taxes means
that more of your assets will be distributed to your heirs. You can leave your assets to
family, friends or charitable groups.

The Indian regulatory environment is evolving, and there is still significant ambiguity
in the jurisdiction of various regulators. The limited range of investment products
offered is largely due to the cautious approach adopted by Indian regulatory bodies.
India’s fixed income, commodities and derivatives markets have not kept pace with its
equities markets in terms of maturity. However, it is expected that the regulatory
environment in India will evolve rapidly, in tune with market and investor needs for a
list of regulatory changes in the securities trading space.

Fiduciary duty and investor protection. Financial advisors in India are not bound by
stringent fiduciary duty regulations; however, recent years have seen a number of
regulatory changes aimed at safeguarding investor interest and curbing money
laundering, such as the introduction of limits in fees and commissions charged by unit-
linked insurance products (ULIPs), elimination of entry loads charged by mutual
funds, strengthening of Know Your Customer (KYC) norms, etc. Recent adverse
incidents in the Indian wealth management space have highlighted regulatory
loopholes. While there are no regulations aimed specifically at protecting the interests
of private banking customers in India, this may very well change in the near future.
This could mean tighter norms around advisor eligibility (qualification and training),
disclosure requirements, stricter rules regarding investment advice, especially in the
public domain, and perhaps even a new self-regulating authority for advisors that may
be empowered to define the fiduciary role and duties, monitor the suitability of
investment advice, etc. These changes will impose higher training costs, as well as
investments in processes and IT for compliance (disclosure/reporting, data security,
etc.). The Securities and Exchanges Board of India (SEBI) recently announced plans
to set up a self-regulatory model for the wealth management industry along the lines
of AMFI (Association of Mutual Funds in India) and AMBI (Association of Merchant
Bankers in India). It has been proposed that the new organization, once formed, will
act as a regulator, as well as a market development authority. •

Evolving tax laws. Tax rules are evolving and are set to change, which might affect
investor behavior. For example, the new Direct Tax Code, which is set to replace
existing tax laws, proposes a move from an Exempt-Exempt-Exempt regime to
Exempt-Exempt-Taxable (i.e., a deferred taxation regime), which may influence
investor preference for some products over others. This, in turn, may drive greater
product innovation.

Wealth management organizations in India will need to be flexible to continuously

adapt and ensure that they can suitably tap into any market opportunities created by
such changes.
What is financial planning?

Financial planning is the process of developing a personal roadmap for your financial
well-being. The inputs to the financial planning process are:

• Finances, i.e., your income, assets, and liabilities,

• Goals, i.e., your current and future financial needs and
• Appetite for risk.

The output of the financial planning process is a personal financial plan that tells one
how to use their money to achieve the goals, keeping in mind inflation, real returns,
and taxes.

In short, financial planning is the process of systematically planning finances towards

achieving your short-term and long-term life goals.

Life goals

Most people nurture dreams of owning a bigger house or car, exploring the world,
giving their children the best possible education, a blissful retirement, etc. Basically,
these dreams are life goals.

Benefits of financial planning:

Here’s a list of the benefits that a well chalked out financial plan can bring about:

• Helps monitor cash flows and reduces unnecessary expenditure.

• Enables maintenance of an optimum balance between income and expenses.
• Helps boost savings and create wealth.
• Helps reduce tax liability.
• Maximizes returns from investments.
• Creates wealth and ensures better wealth management to achieve life goals.
• Financially secure retirement life.
• Reviews insurance needs and therefore also ensures that dependents are
financially secure in the unfortunate event of death or disability.
• Lastly, it also ensures that a will is made.
Objectives of this Project

• To understand the current financial position of the wealth owner.

• To help the wealth owner to identify the Financial Goals, short-term,
intermediary and long-term goals.
• To help the wealth owner to plan as to achieving the above-mentioned goals.
• To recommend and develop a plan as to achieve the above-mentioned goals.

Transtheoretical Model of Change

The transtheoretical model for change proposes that people transition through defined
stages in the process of altering problematic behavior patterns. The stages are defined
as: “pre-contemplation” where no problem is acknowledged and there is no
consideration given toward change; “contemplation” where a problem is
acknowledged and serious thought is given to change in the future; “preparation”
where some behavioral change is initiated; “action” where substantive behavioral
efforts lead to alteration of the previous pattern; and, “maintenance” where change is
sustained through continued effort.

According to the Transtheoretical model of change, the client is in the action phase.

As he is in the process of creating the wealth and is saving for the retirement and

further, has a proper plan for the succession of the business. Also he is in the process

of accumulation of funds and investing properly with the guidance of his personal

financial planners.
 LITERATURE REVIEW

(Cheung Cheuk, 2019) in the article “Wealth Management While Dealing with Memory
Loss” the author aims to understand the mechanisms through which severe memory
problems could affect portfolio choice of older households. The focus is on two potential
mediators, cognitive ability and survival expectations, which are both expected to be
adversely affected by memory disorders. Using data from the Health and Retirement Study,
their findings show that cognitive ability and survival expectations are negatively associated
with severe memory problems. Through the mediating role of cognitive ability, memory
problems negatively affect the probability of holding risky assets, the amount of risky assets
in the investment portfolios and financial wealth. Survival expectations, on the other hand,
do not play a significant mediating role in portfolio allocation. In addition, the financial
burden of severe memory problems does not seem to directly affect portfolio decisions.
(Kliman Russ, 2019) in the research paper “Cognitive Computing: Impacts on Financial
Advice in Wealth Management” the author explains how Cognitive computing is a form of
problem-solving that incorporates machine learning, big data, data mining, natural language
processing, machine vision, robotics, and other strands of artificial intelligence. Cognitive
computing solutions can be used as sole or partial solutions to augment decision-making.
The financial services industry is in a state of transformation, driven by the convergence of
rapid changes in financial service technologies (fintech) – including cognitive computing, the
digitization of the consumer and the emergence of younger investors. This study examines
how the use of cognitive computing to improve financial advice can provide value for the
financial intermediary and the end consumer.
Wyman et al (2014) says that digital is a threat to established participants in wealth
management. Younger, technologically-savvy investors have a greater comfort level with
self-directed investing than the older generation of today. These investors have also grown
up in a world where young companies routinely disrupt older companies— and often create
entirely new industries. As a result, the next generation of investors is likely to have a
greater openness to directing their savings to entities that rely on new models and different
technologies—all at lower cost—than established wealth managers. But there are also
digitally-oriented opportunities for established wealth managers to deepen their connection
with investors through the use of enhanced communications platforms, while also
improving the overall investor experience. Significantly, technology can also be harnessed to
reduce operating costs—savings that can be passed along as lower fees to investors.
(Thakur & Jain, 2017), researched retirement planning and social security concept in the
Indian context. They suggest an aim to have financial independence along with ability to
maintain same level of lifestyle as present. The state that careful financial planning
enhances the value of life in the retirement years to and if the individual further provides
for healthcare one can add years to their life. They discuss pension plans and a full-fledged
retirement planning process along with establishing asset classes for investments. These
asset classes have been stated as- direct equity, combination of equity & debt, PPF, bank
FDs, bonds, money market instruments, real estate, etc., enlisting the benefits and
conditions in India.
(Moreno, 2016), highlights the need to manage wealth through the new means of
technology and leave past the redundant ways of managing wealth. The author highlights
that the wealth today is shifting from Baby Boomers to Gen X and even towards Gen Y in
most of the cases. These Gen Y and Gen X are very well versed with technology and can
make speedy investment decisions with the help of such technologically advanced tools. The
accuracy on the data is also more reliable than that of traditional sources. But the Baby
Boomers are still the bedrock of their business and efforts must be taken to get them on
board with these digital platforms. The key highlights of the study conducted by Forbes in
partnership with Tesmos reveal that 34% of HNW clients want either digital-only or a mix of
digital and offline communication. Also, 62% of HNW clients say that the digitization of
wealth management services is good overall, but they still want to meet often with an
advisor. However, the sole belief of 17% of HNW clients say technology is essential in
operations and they cannot do without it. The major concern with the use of technology is
the cyber risk and hacking, which creates hinderance in its adoption. Another key finding
highlights the fact that, Investors over age 50 tend to be more focused on the security of
data and hence are averse to technology for research and investment. However, with the
growing Gen Y, there is a certain need to develop and understand these technologies by
wealth managers to be able add value and create wealth. For this the wealth managers
need to engage in and provide user- experience design, digital channel marketing, state of
the art digital experience.
(Amlan Jyoti Sharma 2016), researched limitations of the traditional finance theories and
the significance of the growth of behavioural finance discipline in the study of investors’
behaviour in financial market. Conventional Finance has many limitations such as Concept of
Rationality, Role of Emotions in Investment, Informational Accuracy, Role of Experience,
Demographic factors. Research says that we must recognize the shortcomings of
conventional finance and at the same the growth of behavioural finance in this regard is
definitely a positive aspect. And the behavioural finance is only a collection of ideas and
thoughts which are descriptive and advisory in nature, but they are not exhaustive.
(Crosby, 2014), in his article on financial goal planning states that for goal setting to be truly
successful, it must take into account how people setting them behave. He proposes a three-
pronged approach to setting these goals- planning for worst, picturing oneself at 90,
motivation to meet aspirations. The first part not only covers liquid assets, special situation
planning, but also insurance planning. The second one covers retirement planning and
investment plan for a regular income then. The final step of the approach suggests that
investors must stay motivated to follow through with the life goal and the subsequent
investment options they look into.
Velmurugan et al (2015) concludes that investment is done in various investment avenues
with the expectation of capital appreciation, short- and long-term earnings. The basic idea
behind investment of all government, private, self employed and retired person in this study
is to utilize the surplus money in favorable plans so that the money will be rolled back as
well as generate high returns. When a common man thinks about investment he will never
go for any risky plan. In the present scenario the share and gold market are highly uncertain
and unpredictable, so the investor should analyze the market cautiously and then make
investment decision.
Nayak (2013) in his reports says that there has been a significant change in the level and
density of savings pattern of rural households because of the increase in saving
opportunities available in the convenient bar. The increase in the financial institutions like
banks, micro-finance institutions, SHGs and other local banks provided an opportunity to
rural people to save more. The increase in awareness among people for their future security
as through the unforeseen cases like sudden death of a family member, medical emergency
and any other financial crisis, education of their children, marriage of a family member had
made people inclined to save. The degree of change in savings as compared to urban
communities of rural households are not much but still has brought a revolution in the
pattern of savings of rural households.
CLIENT PROFILE

Attributes Details

Name Mr. Abhijit Sharma

Occupation Businessman

Shop Name Sharma Steels (Owner)

Gender Male

Age 52

Marital Status Married

Number of members in the family 4

Number of Dependents 3

Wife’s Age 48

Wife’s Occupation Homemaker

Elder Son’s Age 22

Elder Son’s Occupation Student – SP Jain (Post Graduation)

Younger Son’s Age 18

Younger Son’s Occupation Student – IP university (Graduation)

House Self-Owned (Model Town)

Cars Owned 2

Bank Accounts Yes

Investment in Market Yes

 Use of Credit Card No

Lifestyle of Family Luxurious

Family Income 21 lakhs PA

Owner’s Description

Mr. Abhijit Sharma , 52 years old is owner of Sharma Steels and has annual income of Rs 21 lakh. He
stays with his homemaker wife, Smriti (age 48 years) and two sons, Sameer and Mayank. Sameer
(age 23 years) is pursuing Post Graduation in Finance from SP Jain institute of Management and
Mayank (age 19 years) is doing graduation from IP university and is currently in first year.
Sharma’s family has a luxurious style of living. Mr. Sharma owns a house in Model town and has 2
cars, one for his family and one for commuting to office. He is planning for his elder son’s marriage
by 2022 and wants to save 35 lakhs by then. Also, he wants to save 10 lakhs by 31 march 2023 for
st

his younger son’s post-graduation. Sharma’s are fun loving family and has an international holiday
planned in July in the coming year for which they need a corpus of Rs 5 lakh.
At present, he has no current or long-term liability and prefers to invest his surplus back into
business after saving for his short, intermediate and long-term goals as well as meeting his living
expenses.
Following are the Personal Wealth Statement and monthly
Cashflow statement :
Personal Wealth Statement as of December 2020
Cash Flow Statement as of Month ended December 2020
Various Activities were conducted like the one above to analyze the money relationship of Mr.
Sharma , his earning mentality and his current check on solvency and personal debt adequacies.
from such activities we figured out that Mr. Sharma is well thought of person who is optimistic, has
appetite to take risk, even for short term period.
His personal debt quiz shows that the person is sound financially and managing his business and
personal finances well. though due to very low or no debt there is no leveraging effect that comes
into the picture and the client is skeptical about taking any loans for consumptions as they fear
financial debt trap and aren't willing to take much of personal loans. but they do have business loans
that are covered in their business accounts and as per tax planning they buy most of the
automobiles on business accounts to claim depreciation benefits and other expenses like petrol
maintenance are covered from business accounts only.
Ratio Analysis
Personal Wealth Statement as of December 2020
 Cash Flow Statement as of Month ended December 2020

Basic Solvency Ratio

The Ideal Ratio is 6 and the client’s ratio is also approximately the same. this
means that the client is having adequate emergency fund cover.

Liquid Ratio
the Ideal Ratio should be 15%, but the client has only 3% liquid ratio. this is due
to the fact that the net worth of the individual is too high that the liquid assets
are very low in that comparison.

Savings ratio
Savings ratio is 4% higher than the ideal ratio which shows that the client has
adequate savings in general, which will enable client to meet his goals
efficiently

Debt to Income / Debt to Asset

Is 0 which is due to the fact that client has no personal liabilities or debt to
service. the client is not having any debt is thus not leveraging the effect of
debt, due if possible, in the future course of action we will try to leverage this
as well

Solvency ratio
Its 100% because total assets and total net worth are same due to no debt
obligations of the client.
Risk Profiling

According to the Human Life Value Calculator, Mr. Sharma’s current human life value is ₹
1,54,82,207. Thus HLV is method of calculating life insurance based on contribution that one makes
and would have made to her/his family in case of sudden demise. So HLV is defined as the present
value of all future income that you could expect to earn for your family's benefit.
Mr. Abhijit is a risk taker as he is keen on investing in his business rather than other investing options
as he is able to earn approximately at least 10-15% more in investing in his business rather than any
other option.
He currently has 4 insurance policies (including medical floater policy) under his name. The details
are as follows:

Table 1

Details Automobile Insurance (Scooty, HONDA Activa)

Company IFFCO TOKIO

Policy No. 1-19GQCQ8X

Coverage Amt. 24,800

Annual Premium 1563

Agent Raghav Kukreja

Table 2

Details Health Insurance

Company IFFCO TOKIO (Family health protector)

 Policy No. H0068855

Coverage Amt. 7,00,000

Deductible -

Annual Premium 42,381

Agent NA

Table 3

Details Life Insurance

Company LIC (Money Back -2031)

Policy No. 125978274

Coverage Amt. 2,00,000

Deductible 0

Annual Premium 16077

Agent -

Table 4

Details Life Insurance

Company SBI Life - Flexi Smart plus Gold Cover (10 yr.)

Policy No. 1M006603503

Coverage Amt. 5,00,000

Deductible 0

Annual Premium 50,000

Agent -

• According to Table 1, Mr. Abhijit has a two-wheeler automobile insurance from IFFCO TOKIO
having a nominal amount of premium of ₹ 130 per month. It is nominal as well as the
coverage amount is roughly ₹ 25000. It is sufficient to sustain and security of the two-
wheeler

• According to Table 2, Mr. Abhijit has a family floater health care plan of IFFCO TOKIO having
a coverage amount of ₹ 700000 with monthly premium amount of ₹ 3581. There are various
other schemes that would serve this purpose. These are compared in Table 5
 Table 5

Details Religare-NCB Super Aditya Birla Capital-Active Oriental Insurance-

Premium Assure Diamond Happy Family
Floater Gold

Premium ₹ 3663/month ₹ 3095/month ₹3006/month

Cashless 203 251 186

Hospitals
(Delhi-NCR)

Bonus on No 70% increase in Sum 10% increase in Sum not available

Claim Insured (max 150% and Insured (max 50% and 10%
70% decrease in case of decrease in case of claim)
claim)

Day Care All Day care treatments 586 Day care treatments 116 Listed Day care
treatments are covered are covered treatments are
covered

Share Claim Full claim paid by Insurer Full claim paid by Insurer Full claims payment
Payments (20% co-payment if (20% co-payment if by Insurer
age>60) age>60)

• According to table 3 and 4, Mr. Abhijit has 2 Life insurance policies which are money back.
The coverage amount is very less and the premiums paid are relatively high too.
• Some other money back schemes in comparison to these are described in Table 6:

Table 6

Money back Plan Type Policy Min Max Maturity Minimum

plan Term Entry Age Entry Age (yrs.) Sum
(yrs.) Age Assured (₹)
(yrs.)

LIC-Money Traditional 20 13 50 70 100000

back (20 participating
yrs.) anticipating
Endowment plan with
money back facility

SBI Life- Savings plan with life 12, 15, 15 yrs. 55, 50, 27-70 75000
Smart coverage 20, 25 (with 12 45
Money back and 15 yr.
Gold plan)
 14 yrs.
(with 20
and 25 yr.
plan)

Bajaj Allianz Traditional Money 16, 20, 0 54 18-70 100000

Cash Assure Back plan 24, 28

HDFC Life Traditional 16-27 30 (for 48, 51, 18-75 128337

Super participating plan with 18-27 yrs. 53, 55,
Income Plan Life Coverage policy 57, 59
term)

2 (for 16
yrs. policy
term)

Reliance Non linked non 10, 20, 18 yrs. 55 28-80 100000

Super participating non 30, 40,
Money Back variable plan with life 50
Plan coverage

• Based on the risk-taking appetite of Mr. Abhijit and his human life value calculated, it is
imperative that he opts for a TERM INSURANCE plan in addition to the existing plans taken.
The various options to choose from are included in Table 7

Table 7

Plan Details ICICI Prudential- HDFC Life - 3D Plus Max Life Smart
iProtect Smart Life Option Term Plan

Premium 4070/month 3991/month 3676/month

Max Coverage upto 99 yrs. 85 yrs. 85 yrs.

Claims Settlement Ratio 98.6% 99% 98.7%

Average Claim Trend 97.73% 98.13% 98.27%

Online Discounts 5% off 5.5% off 7.3% off

Tax Benefit Yes Yes Yes

Issuance Time 7 days 8 days 8 days

Solvency Ratio of 2.52 1.92 2.75

Insurer company
Note: The solvency ratio of insurer company signifies the size of its capital against all the risk it has
taken. It is an indicator of the insurance company’s long-term survival.

Investment Planning – SMART Goals

Short Term Goals

1. Foreign trip to Dubai with family in July, 2020

The cost estimated for trip is Rs 5 lakhs. Since Mr. Sharma has an Endowment policy of amount Rs 5
lakh maturing on 21st January,2020 he will keep that money for their trip

Intermediate Goals

1. Elder son, Sameer’s marriage by July 2022

For his elder son’s marriage, he needs a corpus of Rs 35 lakh. Although he has planned to arrange
funds by selling a property where he has invested as a real estate investment, we recommended him
to dilute some percentage of ownership that would provide him with Rs 20 lakhs and save remaining
Rs 15 lakhs by investing Rs 32,772 per month SIP in Balanced Mutual Funds for 2 years providing a
return of 10% (Average 1 year return in equity mutual funds is 15%) as he has an investible surplus
of Rs 95000 per month.
Taxation benefits: On selling Equity mutual funds after a year, you must pay a LTCG tax of 10% on
returns over 1 lakh in a financial year. Such gains are taxed at 20% with indexation benefit
2. Younger Son, Mayank’s admission in post-graduation in March,2024
For Mayank’s education, Mr. Sharma is planning to save Rs 10 lakhs by March,2023 and sanction
loan for remaining amount. To save Rs 10 lakhs in 3 years, he can invest Rs 23,736 monthly in ELSS
mutual fund.
There are various ELSS schemes available, they should be chosen for such a scheme.
OR
The investment can be done in a company FD

Any of these could be used for this goal and they would have the per month investment of about
24,118 Rs.
Taxation Benefit: As the lock in period of ELSS funds are 3 years, the gains are treated as long-term
gains and they are taxed at 10% for gains over 1 lakh rupees.
There is no Taxation benefit in case of Company FD, instead the Interest received is charged as tax
deductible on source above Income of 5000 Rs. Per year.

Long Term Goals

1. Second Child Marriage: younger son- Mayank’s marriage by 2028

For the marriage of his second son which is planned to happen in the year 2028, which is 7 years
ahead from now. For this he has planned to have about sum of 42 lakhs by July 2028. This can be
done by using two things: prior real estate investment and per month saving to be into an
investment to get a fixed return.

42 lakh Rupees after 7 years

Selling Real Estate fund to generate Investments in Balanced Mutual Funds

which25 lakh rupees by 2028 year would accrue 17 lakh rupees by
2027
• Real estate amounting to 25 lakhs can be sold in 2028
• In balanced mutual funds amount could be easily invested in SBI Magnum Equity multi cap funds
with investment in equity 80% and 20% in debt which have an average return of 10.68% for the
period of 5 years and would accrue to per month investment of about 21,493
OR
ICICI Prudential Balanced Advantage Fund – Direct Plan which have an average return of 11% for
a period of 5 years and would lead to have an average investment per month of 21000.

Taxation
a. Real Estate : In this case for the amount of property to be sold after 2 years is under long
term capital gains, for that the indexed cost if acquisition is calculated further, the LTCG is calculated
on 20%+ cess( 20.8%)
b. Balanced mutual benefit : Taxation would be 10% LTCG on Equity and 20% on debt with the
benefit of indexation

2.Retirement Planning- Funds during retirement by 2031

Mr. Sharma wants to accumulate a corpus during his golden year till his age of retirement.
This has been calculated as follows:

He has a current monthly expense of 50,000 , when it is calculated in terms of FV. It will come to
about 81000 per month post 10 years at inflation rate of 5%. Now we can assume that of the future
monthly expense calculated only 70% would be the required expense as children would be settled at
that time and no expense has to be made on them. Thus, only 57011 would be needed per month.

Based on this information, by keeping in mind the inflation rate for expenses, the PV of corpus at the
year 2031 has been calculated at 59,07,775.

This corpus can be calculated as follows:

The investment could be made into SBI Magnum Constant Maturity fund to get the corpus of
59,07,775 which would make the per month investment of 28,459 for the period of 10 years till
2031.
OR
For the remaining of the corpus amount could be easily taken out of PPF investment by the client at
the end of 10 years.
Of this corpus maintained by that time could be invested into a useful scheme to generate regular
return per month. So, as to avoid any issue during that time.

Asset Nature of NAV of Type of Asset( Liquidity Maintenance

Asset Asset Income/ Non
income)

PPF Investment Income Illiquid Low

Assets Generating Maintenance

Real Estate Household Non Income Liquid High

assets Generating Maintenance

Balanced Investment Income Can be redeemed Moderate

Mutual Fund Assets generating after 1 year Maintenance

ELSS Investment 48.22 Income Lock in period for 3 High

Assets Generating years Maintenance

SBI Magnum Investment 44.59 Income Lock in period for Low

Constant Assets Generating 10 years Maintenance
return funds

SBI Magnum Investment 22.62 Income Lock in period for 3 High

Multi cap Assets generating years Maintenance
funds

Equity Investment Income No specific but Very High

Assets generating preferred for 1 year Maintenance

Fixed Deposit Investment 6.67% Income For a fixed time Not very high
Assets Generating period, pre mature maintenance
withdrawal is
possible

Company FD Investment 9% Income Any time period

Assets generating fixed, pre mature
withdrawal is
possible
Projected Personal Wealth Statement

Personal Wealth Statement as of January 2021

Cash Flow Statement as of month ended January 2021

Income Rs.
Gross Income (Drawings from Business) 175,000
Less deductions
Income Tax -35,000
Rental Income 20,000
Total Income 160,000
Cash Outflows
Fixed Expenses
Pocket Money To Children 15,000
Petrol Bill
Annual Membership Payment 8,000
Investments 81,195
Insurance Premium 12,000
Total Fixed Outflows 116,195
Variable Expenses
Food At Home 15,000
Clothing 5,000
Telephone 2,000
Electricity 3,000
Personal Care 1,000
Medical Expense 1,500
Recreational Expenses 2,500
Total Variable Outlflow 30,000
Cash Surplus/Deficit 13,805
Problems in achieving goals and suitable recommendations

1. Selling real estate to arrange funds for elder child Gaurav’s marriage
Recommendation: We advised him not to sell entire property, rather only a part of it,as
there are multiple benefits of real estate investment like:
1. Low risks
2. Inflation hedging
3. No entry barriers to investing
4. Passive income
5. Certain tax exemptions
Also, it could act as a secure investment and cushion for younger son, Mayank’s marriage.
Rather than selling it, he could start monthly SIP of Rs 32,772 in Balanced Mutual fund as he has an
investible surplus of Rs 95,000 per month.
2. Loan Averse
Recommendation: To arrange funds for Mayank’s Post Graduation by March 2022, we
advised him to start investing Rs 23,736 monthly in ELSS mutual funds that will amount to Rs
10 lakhs after 3 years and take loan for remaining amount.
It will provide taxation benefit under section 80C of Income tax. As the lock in period of ELSS
funds are 3 years, the gains are treated as long-term gains and they are taxed at 10% for
gains over 1 lakh rupees.
3. Dependency on business for all expenses
Mr. Sharma invests all his money in business and has no diversification in his portfolio.
Because of it, he has a risk of losing significant portion of his net worth due to lack of
diversification All the expenses or loans are taken in the name of business, so there is no
segregation personal wealth statements.
Recommendation: He is advised to start investing in balanced mutual funds, ELSS mutual
funds, retain his real estate property and start investing in Post office saving schemes.
4. No term insurance
As Mr. Sharma is 52 years old, although he is having a family floater health policy but doesn’t
have any term insurance.
As he is getting older, he is prone to diseases now. There is no term insurance to insure him
and his family against the risk.
Recommendation: A term insurance of at least 1 crore at his age that too at normal
premium is available. He must avail that in order to safeguard his family in case of any
mishap.
5. We have taken 20 years life span after retirement for Mr. and Mrs. Sharma but longevity is
always a risk that will be present
6. Given substantial wealth of Mr. Sharma , although he does not find the need to borrow
money to realize goals, but using strategic debt opportunistically often provides wealthy investors
with enormous benefits

Periodic Review and Updates

5 key questions to ask at annual review time

• Is your investment strategy on track?
• Are you saving tax-efficiently?
• Are you protecting your income?
• Are you preserving your assets?
• How does your plan affect your family?

1. Investing strategy on track

Revisiting each priorities and strategies to achieve them. At least once a year, check your target
asset mix to ensure that it continues to meet your time frame, risk tolerance, needs, and
preferences, and to perform any rebalancing that might be necessary in light of the past year's
market performance.
2. Saving tax-efficiently
Being assertive about returns are good but sometimes tax planning is required Although you cannot
control market returns or tax law, you can control how you use accounts that offer certain tax
advantages. This type of approach is often referred to as active asset location. Employing this
strategy allows you to choose which assets to keep in your tax-advantaged accounts and which to
leave in your taxable accounts. In general, the more tax-inefficient an investment is, the more tax
you pay on it.
3. Protecting the Income
It's wise to evaluate your family's total insurance needs annually to make sure you have the right
amount and type of insurance to cover unforeseen circumstances that can derail a financial plan.
Annual review should also include a simple check of your insurance beneficiary designations to see
whether they are up to date
4. Preserving the Assets
Annual review to make sure you have an estate plan, and that it continues to reflect your family
status and financial situation. Ensure that it helps make the best use of the latest estate and tax
laws, and that key individuals know where to find relevant documents and information.
If you do have an estate plan, do the people you care about know about it? Where is it, and what
role should your loved ones play if something happens to you? Marriage, divorce, birth, and death
are the 4 big events that affect estate plans, but you may also want to consider other factors, such as
longevity and health, that could affect your planning.

5. Effects on Family
Annual review can help prioritize financial decisions that you need to make to support your family's
goals across the generations—and help tee up long-neglected family money conversations. It can
help you bring your family together to sort through vital matters related to such things as college
savings, caregiving responsibilities, health care decisions, estate planning, and the tax implications of
an inheritance.

So, we will be keeping a periodic review of half yearly to look into various aspects related to
investment planning. We will divide the whole plan into 3 Phases, 1st phase will completion foreign
trip and reviewing the investments positions at that time to make changes if needed in the
immediate goals. Second phase, review will be after the completion of funds created for post-
graduation of 2nd Child and last will be 2 years before retirement so that any major discrepancies
can be looked seriously. although these are major reviews periodic half yearly reviews will happen
parallelly.
Learnings

• A sound wealth plan comprises of :

Wealth Accumulation
Wealth Protection
Wealth Distribution

• Following Life Cycle Theory of Consumption and Saving

• Having money equivalent to or atleast 6 months of mandatory expenses in a contingency or

emergency fund

• Never put all the eggs in one basket i.e. diversification is always preferred. Always consider
different investment options while asset allocation to maintain liquidity

• 15% of portfolio should comprise of assets that could easily converted to cash. More than
15% would make the assets unproductive

• Atleast 10% of income should go towards investing

• Affluent investors may not find the need to borrow money given their enormous wealth, but
using strategic debt opportunistically can provide enormous benefits to wealthy investors
a. Using debt to grow wealth: Pursuing new investment opportunities that are in line with the
goals without having to sell existing securities or incur untimely tax liabilities
b. Using debt to Protect wealth: Rather than investing all the money in one stock, person can
choose to borrow money against the value of company stock (40-50%) and use it to build diversified
portfolio. It avoids single stock risk and avoids generating an immediate capital gains tax liability.
c. Using Debt to Enhance Lifestyle

• Factors to consider before borrowing:

a. Your goals
b. The risks
c. Your finances

• Individuals and their possessions are at risk al through their lives resulting in partial or total
loss of future earning power and destruction of personal assets. Personal risk management
involves guarding against life uncertainities and securing personal assets with insurance such
as life insurance, health insurance, emergency planning

• Investment in insurance provides income tax rebate and helps in creating balanced financial
portfolio
References

1. Blanding, M. (2016). Why Millennials Flock to Fintech for Personal Investing. HBS Business
Research for Business Leaders. Retrieved from https://hbswk.hbs.edu/item/why-millennials-
flock-to-fintech-firms-for-personal-investing
2. Pellegrin,J .Managing the Family Business: Preparing to Sell. (2015). HBS Business Research
for Business Leaders. Retrieved from https://hbswk.hbs.edu/item/managing-the-family-
business-preparing-to-sell
3. Mills, K. G., & McCarthy, B. (2016). The State of Small Business Lending: Innovation and
Technology and the Implications for Regulation. HBS Business Research for Business Leaders.
Retrieved from http://www.hbs.edu/faculty/Publication Files/17-042_30393d52-3c61-41cb-
a78a-ebbe3e040e55.pdf
4. Velmurugan, G., Selvam, V., &Nazar, N.A. (2015). An Empirical Analysis On Perception of
Investors’ Towards Various Investment Avenues.
5. Wyman, O. (n.d.). The Future of European Wealth Management. Retrieved October 15,
2019, from https://www.oliverwyman.com/our-expertise/insights/2014/nov/the-future-of-
european-wealth.html.
6. Determinants and Pattern of Saving Behavior in Rural ... (n.d.). Retrieved October 15, 2019,
from https://pdfs.semanticscholar.org/f2e6/6670c964cf72fa5ec58d512f1830837884a2.pdf.
7. The out-of-sync advisor: Applying disruptive innovation to serve non-consumers of wealth
management advice. (n.d.). Retrieved October 15, 2019, from
https://www2.deloitte.com/us/en/insights/industry/investment-management/out-of-sync-
advisor.html.
8. https://reader.elsevier.com/reader/sd/pii/S016748701500094X?token=BF1924CB0E567EEB
733(Lisa Farrell, 2015)
9. (Brown, 2018)https://www.nirsonline.org/wp-content/uploads/2018/02/Millennials-Report-
1.pdf
10. Vincent, G., Gauthier, & Deloitte Consulting LLP. (2018, November 14). The digital wealth
manager of the future: Deloitte US. Retrieved October 10, 2019, from
https://www2.deloitte.com/us/en/pages/consulting/articles/the-digital-wealth-manager-of-
the-future.html.
11. The “Greater” Wealth Transfer Capitalizing on the Intergenerational Shift in Wealth. (n.d.).
12. Wealth Management in India: Challenges and Strategies. (n.d.). Retrieved from
https://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-
and-Strategies.pdf

13. https://economictimes.indiatimes.com/mf/analysis/sbi-equity-hybrid-fund-fund-
review/articleshow/70852875.cms?from=mdr

14. https://economictimes.indiatimes.com/wealth/invest/bank-fds-or-company-deposits-what-
should-you-opt-for/articleshow/63728544.cms?from=mdr