CASE STUDIES

CASE STUDIES (Part 1)

• Definition: This section provides practical examples of comprehensive financial planning through case studies.
• Details: The case studies cover various aspects of financial planning, including retirement planning, education funding, and investment strategies.

Key Concepts

• Retirement Planning: Involves calculating the required retirement corpus, considering factors such as salary growth, inflation, and investment returns.
• Investment Strategies: Includes allocating investments between debt and equity, considering factors such as risk tolerance, time horizon, and expected returns.
• Taxation: Plays a crucial role in financial planning, and individuals must consider tax implications of their investments and income.
• Inflation: Affects the purchasing power of money over time, and individuals must factor in inflation when planning for long-term goals.
• Risk Management: Involves mitigating potential risks, such as death or disability, through insurance policies.

Case Study 1: Mr. Z

• Objective: Calculate the retirement corpus, debt and equity allocation, and corpus requirement for sustaining a standard of living after retirement.
• Key Points:
  • Calculate the total retirement corpus using the formula for future value.
  • Determine the debt and equity allocation based on the given investment strategy.
  • Calculate the corpus requirement for sustaining a standard of living after retirement, considering inflation and expected returns.

Case Study 2: Mr. Y

• Objective: Calculate the amount required for funding a son's post-graduate education and a daughter's marriage, and determine the investment policy.
• Key Points:
  • Calculate the future cost of education and marriage using the formula for future value.
  • Determine the amount required for funding the goals, considering the expected rate of inflation.
  • Evaluate the investment policy based on the given returns and risk tolerance.

Case Study 3: Mr. and Mrs. Gupta

• Objective: Address questions regarding their re-location to India, including tax implications and insurance coverage.
• Key Points:
  • Determine the tax implications of their rental income from the US property in India.
  • Evaluate the continuation of their health insurance policy in the USA.
  • Consider the implications of their life insurance policies and retirement investment accounts in the USA.

CASE STUDIES (Part 2)

• Taxation on Rental Income: c) Yes, they will have to pay tax in India on the rental income from the US property without getting any credit for the tax paid in the US on such rental income.
• Deferred Tax Retirement Account:
  • Taxation: The income accrued on the deferred tax retirement account will be taxed only in the year when such money is withdrawn.
  • Credit for Tax Paid in the US: If the deferred tax retirement account is notified under section 89A of the Income Tax Act, then tax in India will also be paid in the year of withdrawal and credit will be available for the tax paid in the US.
• Life Insurance Policies:
  • Requirement: Both individuals will need to buy Life Insurance policies in India for covering the risk of death.
  • Options: They need not buy fresh life Insurance policy in India and can either pay the premiums for the existing Life Insurance policy from their rental income in US or remit it from India.
• Health Insurance Policies:
  • Renewal: It would be advisable to continue the existing health insurance policies.
  • Additional Policy: It is not necessary to buy any fresh health Insurance in India as the existing policies already cover hospitalization costs in India.

Case 4: Mr. Smart

• Pension Details: Mr. Smart has a pension of Rs. 4,80,000/- p.a. received yearly in advance, partially adjusting with inflation to the extent of 50%.
• Retirement Dues: Mr. Smart received Rs. 40 lakhs (after tax) as retirement dues.
• Expenses: The couple's current living expenses are equal to the pension amount, and they want to make provision for expenses on social occasions and leisure travel expenditure to the tune of Rs. 1,00,000 p.a. (inflation 6% p.a.).

Questions and Answers

1. Inflation Adjustment Required: If discounted @ 5% p.a., the inflation adjustment required is b) 76,36,867.
2. Meeting Expense Requirements: The amount required for compensating the difference required for inflation adjustment based on a discounting rate of 5% is higher than the corpus of Rs. 40 lakhs available with them. This means that c) The couple can meet the expense requirements provided the corpus of Rs. 40 lakhs earns @9.22% p.a.
3. Fixed Income Options: The fixed income options available to the couple to earn the highest rate of interest from government schemes would be a) Senior Citizen Savings Scheme upto a maximum investment of Rs. 30 lakhs.

Module-end Questions

1. EMI Calculation: EMI for a loan can be worked out using the d) PMT function in MS Excel.
2. Tactical Asset Allocation: b) Tactical asset allocation depends on the market.
3. Caselet: Ms. T's Investment:
   • Own Funds Invested: Ms. T invested iii. Rs 42,857 of her own funds.
   • Interest Paid: Ms. T needed to pay ii. Rs 5,400 in interest.
   • Net Return: Ms. T's net return was ii. Rs 2,850.
   • Return on Equity: Ms. T's return on equity was iii. 10.9%.
4. Caselet: Mr. C's Risk Profile:
   • Risk Profile: Mr. C's risk profile can be categorized as ii. Moderate.
   • Suitable Assets: The most suitable assets for Mr. C would be iv. Combination of liquid and income-oriented assets.
   • Short-term Investment Option: For parking funds from fixed deposits that have matured for a short period, a iv. Short-term fixed deposit would be a suitable investment option.

Practice Cases with Solutions

1. Additional Life Insurance Required: Adil should take an additional life insurance of b) Rs.58 lakhs to meet the requirements.
2. Return on Investment Portion of Insurance Policy: The return that Bose will earn on the investment portion of the insurance policy is c) 5.3%.
3. Additional Life Insurance Required for Charu: Charu should take an additional life insurance of d) Rs.56 lakhs to meet the requirements.
4. Medical Expenditure: Dhruv will have to bear c) Rs.1 lakh out of his pocket for the medical expenditure.

CASE STUDIES (Part 3)

• Introduction to Case Studies: This section provides various case studies related to insurance, retirement planning, and estate planning.
• Key Concepts:
  • Insurance Claims: Understanding how insurance claims work, including deductibles, co-pay, and reimbursement.
  • Retirement Planning: Calculating the required corpus for retirement, considering factors like inflation, investment returns, and expenses.
  • Estate Planning: Understanding the importance of Wills, registration, and joint holdings in ensuring smooth transfer of assets.

Key Concept 1: Insurance Claims

• Definition: Insurance claims involve reimbursing the policyholder for expenses incurred due to a covered event.
• Details: The process includes deductibles, co-pay, and reimbursement, as seen in the examples of Esther and Fahad's health insurance claims.

Key Concept 2: Retirement Planning

• Definition: Retirement planning involves calculating the required corpus to meet expenses during retirement.
• Details: Factors like inflation, investment returns, and expenses are considered, as seen in Harish's and Jaspreet's retirement planning examples.

Key Concept 3: Estate Planning

• Definition: Estate planning involves planning for the distribution of assets after one's death.
• Details: Wills, registration, and joint holdings play a crucial role in ensuring smooth transfer of assets, as seen in L's examples of creating a corpus for her grandchild's education and planning for her assets after her death.

Key Takeaways

• Insurance: Understand the terms and conditions of insurance policies, including deductibles, co-pay, and reimbursement.
• Retirement Planning: Consider factors like inflation, investment returns, and expenses when calculating the required corpus for retirement.
• Estate Planning: Plan for the distribution of assets after death, using tools like Wills, registration, and joint holdings to ensure smooth transfer.