Level 4 - (Workbook)

A) ₹19188 B) ₹19438 C) ₹19884 D) ₹19446 Q12 Mahesh and Neelam availed housing loan of ₹30 lakh from a bank in April 2011. The foreclosure charges are 5% of the outstanding amount. They ask you the better option than to repay the loan at this stage. You suggest that the money to be repaid now has to be invested in an instrument to generate a return while paying monthly installment from that investment fund. What should be the breakeven annual yield to be targeted from that investment? (3 Marks) A) 11.80% B) 12% C) 8.37% D) 13% Q13 Mahesh’s father has made a Will deed for distribution of his assets. Mahesh discusses with you regarding Probate process, as per you which is not a feature of Probate process? (2 Marks) A) The assets are gathered, applied to pay debts, taxes and expenses of administration and distribute to those designated as beneficiaries in the Will. B) Executor or Personal Representative named in the Will is in charge of this process. C) All legal heirs will receive notices from the court to file objections. D) The court will give orders to distribute the assets to the heirs as per intestate succession Act. Q14 Mahesh wants to know the lump-sum amount required to fund Varun and Sapna higher education expenses if the funds are invested in debt fund using balance from debt MF. (3 Marks) A) 12314954 B) 43602035 C) 45675439 D) 17687767 Q15 Mahesh own a house which has municipal value of 240000, fair rental value of 300000 and standard rent 360000. 50% of the house is let out on rent of 8000p.m. and remaining half is used for his own part time business which has earned him income of 750000 before deducting the expenses in relation to said house property. The expenses incurred for the entire house include Municipal Taxes (12000), Land revenue paid 8000, insurance premium 16000, interest on borrowed capital and depreciation ₹40000 compute Mahesh house property and business income. (5 marks) A) 271000 B) 598222 C) 598200 D) 673660 CFP Final Level: Workbook Page 143

Additional Questions 1. Calculate the SIP for retirement corpus of Mahesh and Neelam. Invest equally in Equity and Debt and rebalance after every 5 year. Consider post Retirement period only for 21 years.75% of pre-retirement expenses will be required during post retirement life. Post retirement investment in risk-free instrument. A) ₹89890 B) ₹59394 C) ₹65789 D) ₹23456 2. Mahesh has received an attractive offer from Tours and Travel company for 7 days Europe trip with family in which he has to pay only 20% upfront i.e. ₹50,000/- while remaining amount may be repaid in 60 EMIs of ₹5750/- each. Mahesh wants to know the approx. The rate of interest charged to him for this offer? A) 14% B) 23.97% C) 14.5% D) 12% 3. Mahesh wants to know that approximate Life Insurance covers he needs in case of he dies today. He wants that his family should receive 90% of present household expense inflation adjusted every month for the remaining expected life of Neelam. Assume life insurance claim proceeds are invested by Neelam in debt instruments. A) ₹45343222 B) ₹31104932 C) ₹15919898 D) ₹34543298 4. Couple will require approx. Retirement corpus ₹2.20 crore and they have earmarked their (Mahesh & Neelam) PPF A/Cs to build the retirement corpus. Calculate the surplus/deficit in their retirement corpus. Both will invest maximum permissible amount beginning of the year in their PPF A/Cs till maturity and also during the extension period of PPF A/C till Mahesh’s retirement. A) ₹9899271 deficit B) ₹10855310 surplus C) ₹23439045 deficit D) ₹43567890 deficit 5. You are advised Mahesh to build corpus for Sapana’s Post Graduation by earmarking 50% of a portfolio of shares and also immediately invest monthly SIP in the equity fund for three years Calculate monthly SIP required? A) ₹789831 B) ₹876127 C) ₹345649 D) ₹193520 CFP Final Level: Workbook Page 144

Solutions Q1 C) Adverse Selection Q2 A) i), ii), iv) and v) Q3 A) ₹23382 (Solution Given Below) Present age of daughter 18 years Age when daughter gets married 28 years Provision for daughter’s marriage expense at present cost 15 lakh Present age of son 16 years Age when son gets married 28 years Provision for son marriage expense at present cost 10 lakh Marriage cost escalation rate 7% Aggressive fund rate 11% Safe investment rate 7.5% Cost at the time of daughter’s marriage 10 years from now ₹2950727 (1500000*1.07^10) PV of daughter’s marriage expense in safe investment 3 years prior ₹2375219 (2950727/1.075^3) Cost at the time of son’s marriage 12 years from now ₹2252192 (1000000*1.07^12) PV of son’s marriage expense in safe investment 5 years prior ₹1568784 (2252192/1.075^5) Total fund required for both marriage switched to safe investment ₹3944002 (2375219+1568784) Monthly investment required ₹23382 Begin mode N = 7*12 I = 11% PV = -500000 CFP Final Level: Workbook Page 145

PMT =? = -23382 FV= 3944002 P/y=12, c/y=1 (Daughter marriage is after 7 years and funds are to be switched to safe investments 3 years prior to. So total time for monthly investment in aggressive fund along with lump sum today is 4 year The expense after utilizing for daughter’s marriage continue to remain in safe until required for son’s marriage.) Q4 A) ₹209514.35 (Solution Given Below) Policy yr Annual Premi Amt Polic Mort Fund value Inves Fund value Fmc Outstandi premiu um investe y ality after tmen c/f (before charges ng fund 4/14 to 4/15 charg value 4/15 to 4/16 m allocat d adm es charges t fmc) 4/16 TO 4/17 ion in retur 4/17 TO 4/18 35000 28000 char 975 26275 4/18 TO 4/19 35000 charge 28000 ges 975 54413.55 n 4/19 TO 4/20 35000 s 28000 750 975 84547.82 35000 28000 750 975 116819.37 9% 28639.75 501.19 28138.55 35000 7000 31500 750 975 154879.78 9% 59310.76 1037.93 58272.82 35000 7000 31500 750 975 195639.62 9% 92157.12 1612.74 90544.37 7000 750 9% 127333.11 2228.32 125104.78 7000 750 9% 168818.96 2954.31 165862.62 3500 9% 213247.18 3731.82 209514.35 3500 Q5 A) 10.27% 300 units (Solution Given Below) 983 per units Number of units 2415 per units Cost of acquisition (17th October 2011) 184 Sale price (2nd April 2020) 301 CII index for the year 2011-12 ₹724500 (2415*300) CII index for the year 2020-21 ₹294900 (300*983) Sale consideration of gold ETF ₹482417.93 Cost of acquisition (17th October 2009) (294900*301/184) Indexed cost of gold ETF CFP Final Level: Workbook Page 146

Long term capital gains with indexation benefits ₹242083 (724500-482417.93) Long term capital gains tax (@20.6) ₹49896.098 Post-tax consideration price of sold units ₹674630.902 (724500-49896.098) Rate of return (CAGR) = 10.49% Alternatively XIRR = 17-10-12 (-294900) (674630.90) 02-04-21 10.27% XIRR Q6 A) ₹18440411 (Solution given below) Rate of return 7.5% Inflation for living expenses 5% Real rate of return 2.380….% Current household expenses(yearly) ₹720000 Age of son 16 years Medical education of son to begin after a year and required for = 6 years Current cost of medical education ₹10 lakh Medical education cost escalation 8% Pv of future cash outflows of medical expenses 6555818 (Begin, N=6, I=-0.462….., PV=?(-6555818), PMT =1000000x1.08, FV=0, p/y=c/y=1) PV of son medical education today ₹6098435 (6555818/1.075) Age of daughter 18years Higher education of daughter to begin after 3 years and required amount = ₹75 lakh Cost escalation of higher education for daughter 10% PV of daughter post-graduation expenses ₹8035519 (FV of 75 lakh after 3 years and discount it at present value @ 7.5%) PV today of 80% of present expenses for 10 years ₹5193112 (Begin, N=10, I=2.380…., PV=?, PMT= -80% of 720000, FV=0, P/Y,C/y=1) CFP Final Level: Workbook Page 147

(FV of current expenses after 10 years ₹1172804 p.a. (Begin, N=23, I=2.380…., PV=?, PMT =50% of 1172804, FV=0, p/y, c/y=1) PV today of 50% of present expenses for the succeeding 23 years ₹5113345 (10538767/1.075^(10)) Total expenses and cost required today = ₹24440411 (6098435+8035519+5193112+5113345) Existing insurance coverage ₹60 lakh Additional coverage required ₹18440411 (24440411-6000000) Q7 A) ₹9354206 ₹825000 (Solution Given Below) ₹315000 PPF balance as on 31.03.2020 – Mahesh 01.04.2021 PPF balance as on 31.03.2020 – Neelam 7.75% Due maturity date 4 years PPF rate of return Total installment till due maturity (April’ 19, 20, 21, 22) ₹40000 Clients account; ₹932038 Contribution in April 2019 ₹48000 Balance as on 31.03.2020 ₹1055991 Contribution in April 2020 ₹58000 Balance as on 31.03.21 ₹1200325 Contribution in April 2021 ₹70000 Balance as on 31.03.2022 ₹1368775 Contribution in April 2022 Balance as on 31.03.2023 Spouse account; ₹20000 Contribution in April 2019 ₹360963 Balance as on 31.03.2020 ₹24000 Contribution in April 2020 ₹414798 Balance as on 31.03.21 CFP Final Level: Workbook Page 148

Contribution in April 2021 ₹29000 Balance as on 31.03.2022 ₹478192 Contribution in April 2022 ₹35000 Balance as on 31.03.2023 ₹552964 Total accumulation till normal maturity (1-April-2023) = ₹1921739 (1368775+552964) Number of contributions in two extended terms of 5 years each 10 years ₹1, 50,000 maximum to be invested in both accounts amounting to ₹3, 00, 000 PPF account balance after 10 years = ₹8681398 (Begin, N=10, I=7.75%, PV=-1921739, PMT=- 300000, FV=? P/y=C/y=1) PPF account balance at retirement (8681398x1.0775)₹9354206 Q8 A) 2.41% (Solution given below) Current age of Mahesh 45 years Retirement age of Mahesh 60years Post retirement survival period 20 years Investment amount with immediate effect ₹30, 000 Amount to be incremented every year of previous amount 20% Rate of return from investing towards retirement corpus 10% Corpus to be accumulated on retirement ₹3705825 Growing annuity formula = (30000*(1+10%)*(1+10%)^15-(1+20%)^15/(10%-20%)) 3705825 PPF expected corpus on retirement ₹9354206 Total corpus = ₹13060031 Current expenses = ₹720000 p.a. Inflation including lifestyle inflation 6.75% Expense on retirement ₹1918009 (720000*1.0675^15) Curtailed expense on retirement ₹959005 Expect real rate of return for inflation linked annuity = 4.48% (Begin, n=20, I=? PV=-13060031, PMT=959005) CFP Final Level: Workbook Page 149

Return from corpus post retirement 7% Maximum inflation for a 20 years inflation linked annuity = 2.41% (1+7%)/(1+4.48%)-1) Q9 B) Determine whether a client has consumer debt Q10 B) This is permissible subject to such an arrangement finding an explicit mention in the Financial Plan For the said activity. Q11 A) ₹19188 (Solution given below) Assume ₹100 invested equally in Equity & debt fund Block of 45 to 50 years Equity = ₹3956 (Begin, N=5*12, I=11%, PV=0, PMT=-50, FV=? P/Y=12, C/y=1) Debt Fund = ₹3625 (Begin, N=5*12, I=7.5%, PV=0, PMT=-50, FV=? P/y=12, c/y=1) Block of 50 to 55 years = Double monthly Investment Equity = ₹14578 (Begin, N=5*12, I=11%, PV=-3956, PMT=-100, FV=? P/Y=12, C/Y=1) Debt = ₹12454 (Begin, N=5*12, I=7.5%, PV=-3580, PMT=-100, FV=? P/Y=12,C/y=1) Block of 55 to 60 years = double monthly investment Equity = ₹40388 (Begin, N=5*12, I=11%, PV=-14578, PMT=-200, FV=? P/y=12, C/Y=1) Debt = ₹32380 (Begin, N=5*12, I=7.5%, PV=-12454, PMT=-200, FV=? P/y=12, C/Y=1) Total accumulated corpus at the time of retirement ₹72768 Current cost of vacation ₹75, 000 Cost escalation 7% Inflated Amount required at the time of retirement ₹206927 (75000*1.07^15) Return = 9% Total corpus required at the age of 60 = ₹3490723 (Begin, N=20, I=1.869…%, PV=? PMT =- 206927, FV=0, P/y, C/Y=1) By using unitary method ₹4797 (3490723*100/72768) ₹4797 is the monthly SIP for the block of 45 to 50 Double the monthly investment (50 to 55) ₹9594 Further double monthly investment = (55 to 60) ₹19188 CFP Final Level: Workbook Page 150

Q12 C) 8.37% (Solution given below) Rate of interest 9.25% Outstanding tenure 96 months Outstanding principle amount ₹2089000 This outstanding amount is the present value of 96 future EMI @ 9.25% compounded monthly hence, the EMI is ₹30875 (N=96, I=9.25, PV=-2089000, PMT=? FV=0, P/y,c/y=12) Pre closure charges (5% of outstanding balance) ₹104450 (5% of 2089000) Loan outstanding on 1st April 2020 if not continued further ₹2089000 Total amount to be paid in April 2020 to repay the loan ₹2193450 (2089000+104450) If the amount is invested over 96 months by reducing EMI of ₹30875 the rate of interest to sustain this arrangement is8.37% p.a. (Begin, N=96, I=? PV=2193450, PMT=-30875, FV=0, P/Y=12, C/Y=1) (This amount is the present value of 96 monthly payment of ₹30875 at the required rate of return) Q13 D) The court will give orders to distribute the assets to the heirs as per intestate succession Act. Q14 A) ₹12314954 (Solution given below) Rate of return 7.5% Balanced available from debt MF ₹12.17 lakh Varun’s medical education expenses ₹10 lakh(current cost) required one year from now and growing @ 8% for the next 6 years PV today ₹6098435 (calculate the inflated cost for each year and then discount it @ 7.5% today) Sapna’s post-graduation expense ₹75 lakh required after 3 years, cost escalation @ 10 % Future value after 3 years ₹9982500 (7500000*1.10^3) CFP Final Level: Workbook Page 151

PV today ₹8035519 Total fund required (6098435+8035519) (9982500/1.07^3) ₹14131954 Available fund ₹12, 17, 000 Additional required ₹12314954 Q15 D) ₹673660 (14131954-1217000) (Solution given below) Let out house (50%) MV 120000 FRV 150000 GAV SR 180000 (-) Municipal taxes Actual rent 96000 NAV 150000 (-) 24 (a) 30% of NAV 6000 144000 (b) Interest 43200 Net Income 139140 (-38340) Business Income ₹750000 Less a) municipal tax 6000 4000 b) Land revenue 8000 c) Insurance paid 20000 d) Depreciation Net Business Income ₹712000 Total income ₹673660 (712000-38340) CFP Final Level: Workbook Page 152

Additional Solution 1. B) 59394 720000 Current yearly expenses 720000x0.75=540000 Expense required after retirement 5% Inflation rate 1122621 Expense at age 60 5.5% Risk free rate Post retirement period 21 years Retirement corpus at 60 22490573 CMDP;N=21,I=RRR(0.476…), PV=solve(22490573), PMT=1122621, FV=0,P/Y=C/Y=1 Let us assume SIP investment is ₹100 FV of equity investment for 5 years CMPD; N= 5X12, I=11, PV=0, PMT=-50, FV=solve(3956), P/Y=12,C/Y=1 FV of debt investment for 5 years CMPD; N= 5X12, I=7.5, PV=0, PMT=-50, FV=solve(3625), P/Y=12,C/Y=1 Total FV after 5 years =3956+3625 7581 FV of equity investment after 10 years CMPD; N= 5X12, I=11, PV=-7581x0.50, PMT=-50, FV=solve(10343), P/Y=12,C/Y=1 FV of debt investment after 10 years CMPD; N= 5X12, I=7.5, PV=-7581x0.50, PMT=-50, FV=solve(9067), P/Y=12,C/Y=1 Total FV after 10 years = 10343+9067 19410 FV of equity investment after 15 years CMPD; N= 5X12, I=11, PV=-19410x0.50, PMT=-50, FV=solve(20309), P/Y=12,C/Y=1 FV of debt investment after 15 years CMPD; N= 5X12, I=7.5, PV=-19410x0.50, PMT=-50, FV=solve(17558), P/Y=12,C/Y=1 Total accumulated value after 15 years = 20309+17558 37867 SIP required = (22490573x100)/37867 = 59394 CFP Final Level: Workbook Page 153

2. B) 23.97% 100% value of loan is ₹250000 CMPD; N=60, I=solve(23.97), PV=200000, PMT=-5750, FV=0, P/Y=C/Y=12 3. C) ₹16810921 CMPD; N= 40X12, I= RRR(2.38…), PV=solve(-16810921), PMT=60000X0.90, FV=0, P/Y=12, C/Y=1 4. A) 9899271 PPF balance in A/C 12100729 CMPD; N= 15, I=7.75, PV=-1140000, PMT=-300000, FV=solve(12100729), P/Y=C/Y=1 Shortfall in retirement corpus = 22000000-12100729 = 9899271 5. D) 193520 FV of sapna's PG goal 9982500 50% of equity shares 1291500 FV of equity shares 1766295 CMPD;N=3, I=11, PV=- 1291500, PMT=0, FV=solve(1766295), P/Y=C/Y=1 Shortfall = 9982500-1766295= 8216205 SIP required 193520 CMPD; N=3X12, I=11, PV=0, PMT=solve(-193520), FV=8216205, P/Y=12, C/Y=1 CFP Final Level: Workbook Page 154

Case Study – 5 (Reference Date: 1st April, 2020) Sanjay aged 31 years is working in a managerial capacity with a private sector bank in Mumbai. He has been married for two years now. His wife Sherlyn is 28 years old and son Ajinkya is aged 1 year. They stay in a rented flat. Sanjay expects to work till 62 years of age. His salary details for the year beginning on date are as follows: Particulars Amount (₹ per annum) Basic 6,60,000 H.R.A. 1,98,000 Executive Allowance 9,60,000 Medical Reimbursement 15,000 EPF: Employee’s contribution 79,200 EPF: Employer’s contribution 79,200 Monthly Expenses of the family are as below: House Rent Paid ₹ 25,000 Household Expenses ₹ 60,000 Following are the details of his assets as on 31st March 2020: Equity Mutual Fund Schemes ₹8.25 lakh (Five schemes of different Mutual Fund houses; one is Sector Fund, two are schemes with focus on midcap stocks, two are diversified funds with large cap focus; SIP of ₹5,000 started 3 year ago and continuing in each scheme in the beginning of every month) Balanced Mutual Fund Scheme ₹ 3.2 lakh (Invested 15,000 units at ₹10 per unit in NFO on 28-03-2017; continued monthly SIP of ₹ 5,000 for a year from 01-01-2018; scheme’s asset allocation in equities/debt is 50:50; dividend reinvestment option, net dividends of ₹ 1.5 per unit reinvested at NAV ₹10.323 on 04-02-2019 and ₹ 2.5 per unit reinvested at NAV ₹11.269 on 05-03- 2020) CFP Final Level: Workbook Page 155

Equity Linked saving scheme (ELSS) Invested in 5,000.000 units at price of ₹ 11.62 per unit on 2nd Feb, 2014; further invested ₹1,50,000 Gold Jewelry and coins at price of ₹ 13.47 per unit on 18th Jan, 2017; open-ended scheme; Growth option. NAV on 31st Car March, 2020: ₹ 22.893 per unit. PPF Account: Balance in Savings Bank Account 100 grams; received as gift on the occasion of Balance in Fixed Deposit marriage in the financial year 2017-2018; Current Price of Standard Gold (22K) ₹ 2,771 per gram. Employees’ Provident Fund House Property ₹ 3,00,000 (depreciated value) Term Insurance Plan ₹ 3,77,440; the account was opened on 8th July, 2014 ₹1,50,000 ₹ 3,00,000 invested with the bank on 1st August 2018 for 24 months with cumulative option. The interest is compounded quarterly at the rate of 9% p.a. ₹ 8,27,325 (Cumulative balance); Situated at Aurangabad, inherited on 1st December 2019 when the market value was ₹ 40 lakh Sum assured ₹50 lakh; ₹ 10,000 p.a. premium. He has following Financial Goals: 1. Possessing a new flat in 18 months from now at Mumbai; Cost negotiated ₹ 1.20 crore; availed a loan at 80% ‘loan to value; interest pre-possession 9% p.a.; 25 year loan tenure after possession of flat. 2. Retirement at the age 62; retirement corpus to yield inflation adjusted expenses till Sherlyn’s lifetime. 3. Buying a car costing ₹ 10 lakh (then price) in October 2020 after disposing of the existing car. 4. Admission of Ajinkya to an international school at age 4; Admission fee ₹ 4 lakh; ₹ 2 lakh p.a. in first 6 years, ₹ 3 lakh p.a. in the next 9 years (all at current prices, cost escalation 8% p.a.) 5. Ajinkya’s higher education when he attains 19 years of age; ₹ 25 lakh would be required (at current prices, Higher Education expenses escalating at 8% p.a.). 6. Create a corpus till age 50 for annual excursion at ₹ 1 lakh (current costs), annual withdrawals begin at age 50 and continue till Sanjay survives. Such expenses escalate at 8% p.a. CFP Final Level: Workbook Page 156

7. Ajinkya’s marriage expenses ₹ 15 lakh current costs, escalating at 6% p.a., marriage at age 27 8. A lump sum for his venture 10 years prior to his proposed retirement Life Parameters : 80 years Sanjay’s expected life : 80 years Sherlyn’s expected life Assumptions regarding pre-tax returns on various asset classes (1-3 years): 1) Equity & Equity MF Schemes/Index ETFs : 11.00% p.a. 2) Balanced MF Schemes : 9.50% p.a. 3) Bonds/Govt. Securities/Debt MF Schemes : 7.50% p.a. 4) Liquid MF Schemes : 6.00% p.a. 5) Gold & Linked investment : 6.00% p.a. 6) Real Estate Appreciation : 6.50% p.a. 7) Bank/Post Office Term Deposits ( > 1 year) : 7.25% p.a. 8) Public Provident Fund/EPFO : 7.75% p.a. Assumptions Regarding Economic Factors: : 5.00% p.a. 1) Inflation : 5.50% p.a. 2) Expected Return in Risk Free Instruments Cost Inflation Index: 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2001-2002 100 2004-2005 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2002-2003 105 2005-2006 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2003-2004 109 2006-2007 301 2019-2020 289 2020-2021 CFP Final Level: Workbook Page 157

Case Study - 5 (Sanjay) (Reference Date: - 1st April 2020) (1) Sanjay’s father has made a Will deed for distribution of his assets. Sanjay discusses with you regarding Probate process, as per you which is not a feature of Probate process? [2 Marks] A) The assets are gathered, applied to pay debts, taxes and expenses of administration and distribute to those designated as beneficiaries in the Will. B) Executor or Personal Representative named in the Will is in charge of this process. C) All legal heirs will receive notices from the court to file objections. D) The court will give orders to distribute the assets to the heirs as per intestate succession Act. (2) You have disclosed in writing to sanjay on your ability to advise and sell on a restricted range of products, and some other limitation of their capacity to serve him. You have complied with the Code of Ethics of _____________. [2 Marks] A) Integrity B) Objectivity C) Fairness D) Diligence (3) A life insurance company is offering a life insurance policy for sanjay wherein 20 annual contribution of ₹60,000 starting from today give the following three maturity figures after deduction of total charges and with a sum assured of ₹1 crore for the whole term as follows;- [3 Marks] 1) Guaranteed maturity benefit of ₹741741 2) Non-guaranteed maturity benefit @ 6% P.A ₹908071 3) Non-guaranteed maturity benefit @ 10% P.A ₹1460179 The policy has provision that in case of any casualty with the life insured, the company shall be paying higher of the then available fund value or applicable sum assured. Sanjay wants to provide by the company if standalone term insurance of ₹1 crore is available of ₹37, 000 p.a. according you the same is ______? A) Minimum-4.36% maximum-10.06% B) Minimum-4.36% maximum-9.05% C) Minimum-5% maximum-8% D) Minimum-5.5% maximum-10.06% CFP Final Level: Workbook Page 158

(4) Sanjay wants to buy new car after 6 months. He will sell the car for ₹150000 after using it for 5 years and take the loan on the balance amount. One of the car dealers gave him an offer for the loan @ 11.75% on monthly reducing balance basis and a 2% processing charges. Sanjay requested him to cumulate the processing charges with the loan amount and dealer agreed with the condition that the loan amount will be increased to the extent wherein 2% is levied on the total loan amount and sanjay will pay the loan in 24 months. What will be the monthly EMI?[4 Marks] A) ₹40711 B) ₹42317 C) ₹39102 D) ₹42102 (5) Sanjay aged 31 years lives with his wife Sherlyn aged 28 year. They wish their retirement corpus, to sustain 70 % of their pre-retirement household expenses inflation adjusted, till Sanjay Lifetime and 70% of then expenses till Sherlyn expected life. They also want to gift ₹50 lakh to their child and an additional ₹25 lakh towards charity to an Old Age Home at Sanjay age of 70 yea₹ The sums are at absolute values then. They also wish to provide in the corpus an additional ₹10, 000 per month (current costs) towards healthcare after sanjay age of 70 year. You estimate the required corpus, if Sanjay retires at 62 years investment yield is 7% p.a., and inflation is 5.5% to be: [5 marks] A) ₹4 Crore B) ₹5 Crore 74 lakh C) ₹4 crore 40 lakh D) ₹4 crore 70 lakh (6) From the above question, for retirement required corpus he will utilize his existing investment in PPF A/c and ELSS A/c. you advice not to further invest in ELSS and shift the entire ELSS fund to debt fund at the age of 55. PPF A/c will extend 3 more blocks after maturity and shift the fund to debt fund. Sanjay wants to know from you how much the percentage of required corpus he will save on retirement and how much additional amount he need to save every month till retirement if amount is invested in equity fund? (Assume 30000 annual saving in PPF) [5 Marks] A) 22% and ₹15172 B) 20% and ₹14010 C) 30% and ₹15505 D) 26% and ₹15043 (7) Sanjay holds two different corporate bonds, details of which are as under: Bond A, FV 100000, coupon rate 9.25%, time left to maturity 3 years, MV 98000 Bond B, FV 50000, coupon rate 11%, time left to maturity 3 years, MV 51300 The rate of Discount is 10% p.a., for both the bonds. CFP Final Level: Workbook Page 159

Sanjay wants to liquidate either Bond A or Bond B or both. Assuming that interest rate is paid annually (at the end of the year), in case of both Bond A and Bond B, what would you advise Sanjay? A) Sell Bond A B) Sell Bond B C) Sell Both Bonds A & B D) Don’t sell any of the Bonds (8) Sanjay is member of Employee’s pension scheme, if Sanjay decides to leave his present job at the age of 32 after 8 years of service what will happen to his existing pension scheme?[2 Marks] A) He can either take withdrawal benefit or scheme certificate so that his 8 year service can be added to any future service that he may put in, in any other covered establishment. B) He cannot take any withdrawal benefit immediately but can add it to any future service that he may put in, in any other covered establishment. C) He can either take withdrawal benefit or scheme certificate only on completion of 10 years of service. D) He can take withdrawal benefit only. (9) Sanjay & his wife have been discussing with you the effect of inflation/deflation on household budget. She has asked you whether there is any product category which has actually shown the deflationary trend over a period of last 20 years’ time. According to you it is _____________. [2 Marks] A) Computer B) Patrol C) Education D) Groceries (10) Sanjay has asked you about FPSB India’s nature of constitution. You have explained him that FPSB India is it ________? [2 Marks] A) Self-regulatory organization B) Professional standards setting body C) Professional regulatory organization D) A quasi government body (11) Calculate the additional life insurance cover if he wants present Inflation adjusted household expense till his wife expected life. And if claim proceeds of insurance along with other financial assets could be invested to generate at 8% p.a. Assume 1.5% above the inflation Rate.[4 Marks] A) ₹186 lakh B) ₹150 lakh C) ₹160 lakh D) ₹171 lakh CFP Final Level: Workbook Page 160

(12) Sanjay would like to know the monthly SIP investment required today for his son higher education expense? You have advised him to equally invest him equity and debt Fund per month till one month prior to completion of Ajinkya’s age 19. You have further advised him to withdraw 40% accumulated corpus 2 years prior to the age of 19 and invest it in debt fund and further withdraw another 50% balance of equity corpus one year prior to the age of 19 and invest in debt fund. [5 Marks] A) ₹11192 B) ₹10100 C) ₹16753 D) ₹11900 (13) Sanjay wishes to avail housing loan to the extent of 80% of the value of the desired house in the next 18 months. He wants to fully repay the loan according to the tenure. You consider 9.75% p.a. as the average interest rate on the housing loan to be availed. He asks you by how much EMI on the loan would exceed his current monthly outgo towards house rent. [3 Marks] A) ₹36000 B) ₹36352 C) ₹35900 D) ₹63544 (14) Calculate Sanjay’s income tax liability for AY 2021-22. He contributes 20,000 p.a. in PPF. Also he paid ₹10,000 for term insurance and ₹30000 for medical policy for his parents aged above 60 who are not dependent on him. He earns interest of ₹2,430 on his saving bank account and interest of ₹14815 on his fixed deposits. [5 Marks] A) ₹229116 B) ₹229115 C) ₹221990 D) ₹260710 (15) Calculate return on ELSS mutual fund scheme for Sanjay. If he wants to redeem his entire units at current applicable NAV. [3 Marks] A) 8.7% B) 18.5% C) 14.80% D) -2.7% CFP Final Level: Workbook Page 161

Additional questions 1. One of Sanjay’s friends has offered him an attractive business proposal. In this proposal a partnership firm consisting of two partners, Sanjay and his friend, shall take the franchise of a reputed financial education company in which their investment and profit sharing shall be 40%:60%. Franchise rights shall be valid for 5 years and the project requires an upfront investment of ₹25 Lac for the required infrastructure. This may be sold to the company after 5 years applying straight line depreciation @ 10%. The projected profits from the firm are as follows. Year 1--------₹2.30 Lac Year 2--------₹3.50 Lac Year 3--------₹4.25 Lac Year 4--------₹4.75 Lac Year 5-------₹ 5.00 Lac Sanjay wants to know what IRR shall earn on his investment from this project. A) 6.75% B) 9.75% C) 7.85% D) 5.75% 2. Sanjay Want to Immediately Invest ₹10 lakh into Life Annuity which should start After 10 yr He Distributes Equally in 2 Annuities. 1st Provides annuity for 25 yrs @7.5% without return of purchase price & other one provides Annuity for 25yrs @6.5% with Return of Purchase price. Find The Annuity Available in The 1st month & the Available Life Annuity. Assume the amounts will be invested @ 7% p.a. during deferment period. A) ₹54317 B) ₹15617 C) ₹13587 D) ₹12217 CFP Final Level: Workbook Page 162

Solutions Q1 D) The court will give orders to distribute the assets to the heirs as per intestate succession Act. Q2 B) Objectivity Q3 A) Minimum-4.36% maximum-10.06% Annual contribution 60,000 Term insurance charges 37000 Investment portion = 60,000 – 37,000 23,000 Minimum guarantee 741741 Maximum guaranteed @ 10% 1460179 So IRR based on company projection = Minimum = 4.35% (cash flow function = 1 to 20 = -23,000 and 21 = 741741) Maximum = 10.06% (cash flow function = 1 to 20 = -23,000 and 21 = 1460179) Q4 A) ₹40711 (Solution given below) Cost of car after six months ₹10 lakh Current car sold for ₹150000 Processing charge is 2% Financed amount = 10, 00,000 – 1, 50,000 ₹850000 850,000 + 2% of 850000 ₹867000 Set = end N = 24 I = 11.75% PV= -867000 PMT =? FV= 0 P/y=12, C/y=12 Monthly EMI ₹40711 CFP Final Level: Workbook Page 163

Q5 B) ₹5 Crore 74 lakh ₹720000 p.a. (Solution given below) ₹3785809 (720000*1.055^31) Household expenses now ₹2650066 (3785809*70%) Expenses at 62 years of Sanjay ₹20188975 70% of such expenses ₹968338(120,000*1.055^(70-31) PV of expenses from 62 to 70 ₹4067021(2650066*1.055^8) Medical expenses at age 70 ₹5035359 (4067021 + 968338) Expenses at the age 70 ₹47292962 Total expense at age 70 PV at age of 70 from 70 to 80 ₹27524934 (47292962/1.07^8) ₹5035359 Set = Begin ₹8601121 (363126*1.055^10) N = 10 ₹6020785 (8601121*70%) I = 1.42…. (RRR) ₹17810328 PV =? (-47292962) PMT = 5035359 Page 164 FV = 0 P/Y=1, C/Y=1 PV at age of 62 from 62 to 70 Expenses at age 70 Expenses at age 80 70% of such Expenses PV at 80 from 80 to 83 Set = Begin N=3 I = 1.42 (RRR) PV =? (17810328) PMT = 6020785 FV = 0 P/Y=1, C/Y=1 CFP Final Level: Workbook

PV at 62 (62 to 80) ₹5269433 (17810328/1.07^18) PV at 62 of gift 50 lakh to children at 70 ₹2910046 (5000000/1.07^8) PV at 62 of 25 lakh at age 70 ₹1455023 Total corpus at age 62 ₹57348411 (Sum of all PV 20188975+27524934+5269433+2910046+ 1455023) Q6 D) 26% and ₹15043 ₹58100 (Solution given below) 11135.85746 units 2nd February 2013 = 5000 units*11.62 16135.85746 units 18th January 2016 =150,000/13.47 ₹369398.1849 Total units = 11135.85746 + 5000 ₹4521122.225 Balance amount = 16135.85746 x 22.893 (369398.1849*1.11^24) ELSS future value at the age 55 ₹7500764(4521122.225*1.075^7) ₹377440 FV at the age of 62 ₹30000 PPF current balance ₹1388846 Yearly saving ₹5115935 Maturity amount ₹7344586 (5115935*1.075^5) Future value after 3 five years blocks ₹14845350 Future value at retirement (7500764 + 7344586) Total corpus on retirement ₹57348411 ( previous question) 25.89% Required corpus ₹42503061 Total Savings (percentage) Shortfall Additional monthly SIP required = 15077 Set = begin N = 31*12 I = 11 PV = 0 PMT =?(-15043) FV= 42503061 CFP Final Level: Workbook Page 165

P/y=12, C/y=1 Q7 B) Sell Bond B In order to ascertain the relative attractiveness of the Bonds, we compute the value of each Bond and compare it with the market price. Value of Bond A= 98,134.86 = PV (10%,3,-(100000*9.25%),-100000,0) Value of Bond A>Market price of Bond A. i.e. Bond A is underpriced Value of Bond B= 51,243.43 = PV(10%,3,-(50000*11%),-50000,0) Value of Bond B<Market price of Bond B. i.e. Bond B is over-priced Conclusion: Sell Bond B Q8 A) He can either take withdrawal benefit or scheme certificate so that his 8 year service can be added to any future service that he may put in, in any other covered establishment. Q9 A) Computer Q10 B) Professional Standards Setting Body Q11 A) ₹ 186 lakh (Solution given below) Equity MF 825000 Balanced MF 320000 ELSS 369398 (16135.85746 x 22.893) PPF 377440 Bank FD’s 346337 (ignoring tds) EPF 827325 Bank Account 150000 Total Value of Assets ₹3215500 Rate of return 8% Inflation = 5% + 1.5% 6.5% Present household expenses 720000 p.a. Sherlyn present age 28yrs Sanjay present age 31yrs Sherlyn expected life 80 y₹ Expense required for the balance life = 80 – 28 52 y₹ Present value of inflation adjusted expenses ₹26789909 CFP Final Level: Workbook Page 166

Set = begin ₹50 lakh N = 52 ₹18574409 I = RRR (1.4084….) (26789909-3215500-5000000) PV=? PMT= 720000 ₹25 lakh FV= 0 8% P/y=1, C/y=1 19 Current insurance cover ₹9990049 (2500000*1.08^18) Additional requirement Debt Q12 C) ₹16753 Set = begin (Solution given below) N = 16*12 Current cost of higher education I = 7.5% Cost of escalation PV= 0 Required at the age of PMT = -50 Escalated value at the age of 19 FV =? (18147) Assume ₹100 is invested according to ratio P/y=12, C/y=1 Equity Set =begin Page 167 N = 16*12 I = 11% PV = 0 PMT= -50 FV =? (24892) P/y=12, C/y=1 40% equity transferred to debt fund Set = begin (equity balance after 1 year) N = 1*12 I = 11% CFP Final Level: Workbook

PMT = -50 ₹53213 (43025+ 10188) PV = -14935 (60% of 24892) FV =? (17213) ₹18774 P/y=12, C/y=1 (9990049*100/53213) Set = begin (debt balance after 1 year) N = 12 Page 168 I = 7.5% PV = -28104 (40% of equity balance+18147) PMT = -50 FV =? (30836) P/y=12, C/y=1 50% balance transferred to debt fund Set = begin N = 1*12 I = 11% PV= -8606.5 (50% of 17213) PMT = -50 FV =? (10188) P/y=12, C/y=1 Set = begin (debt balance after 1 year) N = 1*12 I = 7.5% PV = -39442.5 (8606.5+30836) PMT = -50 FV =? (43025) P/y=12, C/y=1 Total corpus = Monthly SIP is CFP Final Level: Workbook

Q13 D) ₹63544 ₹12000000 (Solution given below) ₹13188811 Current value of desired house = (12000000*(1+6.5%) ^1.5) Expected value of house after 18 Months ₹10551049 (80% of 13188811) 25 years Loan amount to be availed 9% Tenure of the loan ₹ 88544 Rate of interest ₹25000 EMI on housing loan ₹63544 (88544-25000) Current rental outgo EMI in excess of current house rent 660000 Q14 D) ₹260710 Income under the head salaries 0 Basic salary 15000 H.R.A Received 198000 960000 Less exempt 198000 ₹1635000 Medical reimbursement -50000 Executive allowance 1585000 Income from salary Standard Deduction nil (exempt up to Gross total income from salary ₹10000 U/S 80 TTA) ₹14815 Income from other sources 14815 Saving account interest ₹1599815 Interest on fixed deposit 20000 Income from other sources 10000 Gross total income Less deduction u/s 80 (c) Page 169 PPF Premium of term insurance CFP Final Level: Workbook

EPF contribution 79200 0% 0 Deduction u/s 80 (d)(Medical policy) 30000 5% 12500 Total income ₹1460615 20% 100000 Round off ₹1460620 30% 138186 Tax on total income ₹250686 Add (cess)@4% 0-250000 Tax Payable 250001-500000 Round off 500001-1000000 Working note More than 10 Lacs H.R.A calculation Least of the following will be exempt ₹10027 1. Actual received ₹260713 2. Rent paid – 10 % of salary ₹260710 3. 50 % of the salary Taxable = actual received – exempt ₹198000 ₹0 = ₹198000 –₹198000 ₹234000 (300000-66000) Q15 C) 14.80% ₹330000 (Solution given below) Dates Amount 2-Feb-14 -58100 (5000*11.62) 18-Jan-17 -150000 (150000/13.47 = 11135.85746 units) 1-Apr-20 369398((5000+11135.85746)*21.06)) XIRR 14.80% CFP Final Level: Workbook Page 170

Additional Solution Page 171 1. A) CASH I =0 CASH D EXE 1 = -2500000x0.40 2 = 230000x0.40 3 =350000x0.40 4 =425000x0.40 5 =475000x0.40 6 =(500000*.4)+(2500000*.50*.4) ESC SOLVE IRR= 6.75% 2. D) CMPD; N=25*12, I=7.5, PV=-500000*1.07^(10), FV=0, P/Y=12, C/Y=1, PMT= 7069 CMPD; N=25*12, I= 6.5, PV=-500000*1.07^(10), FV= 500000*1.07^10, P/Y=12, C/Y=1, PMT= 5148. Total annuity in the first 1st month=₹12217 CFP Final Level: Workbook

Case Study - 6 (Roger) (Reference Date: 1st April, 2020) Roger, aged 29 years, is working with a multinational company since December 2013. He has approached you, a CFPCM practitioner, for preparing his Financial Plan. He is staying in his own house at Ahmedabad. His wife Angela, aged 31 years, is a fashion designer. She has set up a boutique on rent and earned a net profit of ₹ 5.5 lakh in the previous financial year. They have a son, Mark of age 4 years, and a year old daughter, Stephanie. Roger is also supporting his parents to the extent of ₹ 20,000 per month. They stay at their ancestral house at Surat. The family’s monthly house hold expenses are ₹ 40,000 p.m. (excluding insurance premium and EMIs). Roger normally gets 10% increase in his gross salary year-on-year in the beginning of every financial year, apart from bonus. The bonus for the previous financial year at ₹ 3.3 lakh (net of tax) is agreed to be credited to his account at the end of this month. He has taken a family floater policy for Health Insurance involving an annual premium of ₹ 16,268 and a total cover of ₹ 15 lakh. Roger’s monthly salary (for FY2020-21): Basic Salary : ₹ 60,000 DA (forming part of Salary) : 50% of Basic salary House Rent allowance : ₹ 18,000 Transport Allowance : ₹ 5,000 Medical Reimbursement : Actual expenses up to ₹ 1,250 per month Executive Allowance : ₹ 10,000 Couple’s Current Assets & Liabilities (As on 31st March, 2020) Assets: House : ₹ 75.00 lakh (Current market value, purchase cost ₹ 40 lakh) Car : ₹ 4.00 lakh (Depreciated value) Public Provident Fund - PPF1 : ₹ 4.90 lakh Insurance – Money Back policy2 : ₹ 3.00 lakh (Sum assured) Child Plan – Life insurance3 : ₹ 12.00 lakh (Sum Assured) CFP Final Level: Workbook Page 172

Gold ornaments4 : ₹ 4.50 lakh Equity Mutual Fund schemes5 : ₹ 7.85 lakh ________ 1 Opened in December, 2014 in the name of Roger 2 Purchased on 25thOctober, 2016; annual premium paid ₹ 14,798; 20-year policy with 20% of sum assured payable on survival on 5th, 10th and 15th years and the balance on maturity. 3 Purchased when Mark was 2 year old; term of 15 years; annual premium ₹ 41,374 4 Gifted on marriage in November 2014 at then value ₹ 1.75 lakh. 5 Three schemes; current assets value in one scheme is ₹ 2.5 lakh, in second ₹ 3.5 lakh with monthly Systematic Investment Plan (SIP) of ₹ 10,000; the third is Equity Linked Saving scheme, invested ₹ 1 lakh in March 2018. Portfolio of Equity Shares6 : ₹ 3.95 lakh Bank fixed deposits7 : ₹ 4.00 lakh (Principal, in Angela’s name from her business income) Bank account – Roger Bank account – Angela : ₹ 0.75 lakh Liabilities: : ₹ 0.95 lakh Home loan8 Car Loan9 : ₹ 17.85 lakh (Principal outstanding) : ₹ 3.05 lakh (Principal outstanding) Goals: 1. Accumulate in a fund, higher education expenses of Mark and Stephanie. Expenses at their respective age of 18 years are ₹ 4 lakh p.a. (current cost) required for four years, cost escalation 8% p.a. 2. Marriage expenses of ₹ 10 lakh (current cost) for each child at around their respective age of 25 years, cost escalation 9% p.a. 3. Retirement corpus at Roger’s age of 58 years to sustain 70% of pre-retirement household expenses, inflation adjusted, till his lifetime and 70% of then expenses till Angela’s expected life. 4. A bigger house valued at ₹ 1 crore today, 5 years from now by disposing of the current house and foreclosing the loan. 5. Build a separate fund for vacation expenses of ₹ 1.5 lakh p.a. (current cost), first expenses to be drawn after 5 years and thereafter every year continuing up to the year of Roger’s retirement, cost escalation 7% p.a. A suitable lump sum is to be invested immediately followed by an investment regime. CFP Final Level: Workbook Page 173

Life Parameters: : 75 years Roger’s Expected Life : 80 years Angela’s Expected Life _________________ 6 The Demat account in which Roger and Angela are respectively first and second holders was started in 2016 7 Three deposits; ₹ 2 lakh made on 1st July 2017 for 3 years at 9.75% p.a., ₹ 1 lakh made on 1st July 2018 for 2 years at rate 9.25% p.a. and ₹ 1 Lakh made on 1st July 2019 for 1 year and 1 day at 8.75% p.a.(interest is compounded quarterly and is cumulated to be received on respective maturities.) 8 Home loan of ₹ 24 lakh for a 15-year term taken in April, 2014 at rate of interest fixed for first 3 years at 10% p.a., and floating thereafter at 1.5% above RBI Repo rate. 9 Car loan of ₹ 5.5 lakh taken in April, 2018 at a fixed interest of 11% p.a. for a 4-year term; Car cost ₹8 lakh. Assumptions regarding pre-tax returns on various asset classes : 1) Equity & Equity MF Schemes/Index ETFs : 11.00% p.a. 2) Balanced MF Schemes : 9.50% p.a. 3) Bonds/Govt. Securities/Debt MF Schemes : 7.50% p.a. 4) Liquid MF Schemes : 6.00% p.a. 5) Gold & linked investments : 6.00% p.a. 6) Real Estate Appreciation : 6.50% p.a. 7) Bank/Post Office Term Deposits (> 1 year) : 7.25% p.a. 8) Public Provident Fund/EPFO : 7.75% p.a. Assumptions Regarding Economic Factors: : 5.00% p.a. 1) Inflation : 5.50% p.a. 2) Expected Return in Risk Free Instruments CFP Final Level: Workbook Page 174

Cost Inflation Index: 2001-2002 100 2004-2005 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2002-2003 105 2005-2006 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2003-2004 109 2006-2007 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2019-2020 289 2020-2021 301 CFP Final Level: Workbook Page 175

Case Study - 6 (Roger) (Reference Date: 1st April, 2020) 1) Before beginning work on Roger’s Financial Plan, you have drafted a document outlining the “Scope of Engagement” and sought Roger to mutually define and determine the activities that may be necessary to pursue. Roger asked you about relevance of such a document. In the context of Financial Planning Profession, you explain about the “Letter of Engagement” as a _________. [2 marks] A) professional requirement under Code of Ethics of FPSB India B) professional requirement under Practice Guidelines of FPSB India C) necessary legal requirement as per Contract Act 1872 D) document for his personal record 2) You have finished analysis of Roger’s financial situation and risk profile. Which of the following is the next appropriate step in the financial planning? [2 marks] A) Specify financial goals which can be achieved within Roger’s financial situation based on the information collected B) Fix the scope of engagement based on the available information already collected C) Consider such assumptions of investment returns, inflation, tax rates, etc as to maximize the chances of achieving Roger’s goals D) Identify other issues that may potentially impact Roger’s ability to achieve financial goals 3) Roger wants to estimate the amount of finance needed to buy the proposed new house after 5 yea₹ This could be arrived at by utilizing the net amount from the sale proceeds of his existing house after 5 yea₹ The outgoings from such proceeds would be the outstanding loan amount and a sum of ₹ 10 lakh towards meeting capital gains tax liability on existing house and the statutory charges, furnishing expenses of new house. You expect the average Repo rate of 6.5% to be maintained by RBI over the next 5 year [3 marks] A) ₹ 75 lakh B) ₹60 lakh C) ₹54 lakh D) ₹ 37 lakh CFP Final Level: Workbook Page 176

4) You give a quick look at the assets and liabilities of the couple, and before drawing a comprehensive picture of adequate insurance protection and a strategy to achieve the same, you suggest to take cover on an immediate basis, which is _______. [2 marks] A) They must take Mortgage Redemption Insurance or an equivalent term insurance to cover outstanding loans B) They must take Accident Insurance C) They must take Critical illness insurance D) They must take Unit Linked Insurance Policies for their financial goals 5) You compute the value of additional life cover for Roger by considering 80% of the current household expenses, (inflation adjusted) up to Angela’s age of 55 years and further 80% of then expenses inflation-linked for the remaining period of her expected life by considering investment in debt MF schemes. This cover required to be taken as term insurance exclusive of the sum assured under current insurance policies comes to ______. [3 marks] A) ₹ 120 lakh B) ₹ 135 lakh C) ₹ 220 lakh D) ₹ 105 lakh 6) Roger’s ideal life cover has to be estimated which in case of any exigency will first repay the outstanding loans and the remaining would be invested along with the couple’s existing financial assets. Such combined corpus would be invested in a 7.5% p.a. return instrument to sustain the family’s living expenses and the specific financial goals of higher education of their children. The living expenses need to be taken as inflation-adjusted to the extent of 80% of their present household expenses for 50 year. What should be this ideal cover? [4 marks] A) ₹ 147 lakh B) ₹ 165 lakh C) ₹ 180 lakh D) ₹ 230 lakh 7) Roger and Angela wish their retirement corpus, as per proposed goal, to also have a provision of gifting ₹ 50 lakh to each of their children and an additional ₹ 25 lakh towards charity to an Old Age Home at Roger’s age of 70 year. The sums are at absolute values then. They also wish to provide in the corpus an additional ₹ 10,000 per month (current costs) towards healthcare after Roger’s age of 70 year. You estimate the required corpus, considering the same shall be invested in investment yielding 6.5% p.a., to be _________. [3 marks] A) ₹ 3.53 crore B) ₹ 3.20 crore C) ₹ 3.78 crore D) ₹ 3.67 crore CFP Final Level: Workbook Page 177

8) You sensitize on the post-retirement parameters considered as: investment return 6.5% p.a., inflation 5% p.a., and the specified longevity as you work out retirement corpus. You stress test the same as: investment return 6% p.a., inflation 5.5% p.a., increased longevity of Roger by 5 years and of Angela by 2 years, and no further curtailment after Roger’s death. You work out the revised corpus. What additional funds need to be accumulated by Roger’s retirement age? Alternately, by what percentage the retirement expenses should be curtailed to retain this cushion? [5 marks] A) ₹ 57 lakh; 44% curtailment B) ₹ 14 lakh; 33% curtailment C) ₹ 129 lakh; 55% curtailment D) ₹ 26 lakh; 36% curtailment 09) You inform Roger and Angela about the recent vehicle of taking exposure to Gold, which is Sovereign Gold Bonds (SGB). Which of the attributes about the SGB is CORRECT? [2 marks] A) The Capital Gains on redeeming these bonds on maturity are exempt from income tax B) They work like zero-coupon bonds C) The quoted prices of SGBs currently are very close to ruling Gold prices D) The redemption price on maturity is guaranteed not to be below the issue price of the respective SGB 10) Towards the marriage goal of the children, you suggest Roger to make maximum permissible subscriptions to his PPF account towards the end of every financial year and extend the account twice beyond initial maturity for terms of 5 years each with similar subscriptions. The third term of 5 years is continued without further contribution. Roger shall withdraw about 50% of accumulation for the marriage expenses of mark and the remaining for the marriage expenses of Stephanie. What are the expected individual withdrawals and shortfalls in meeting the marriage expenses? [4 marks] A) Mark ₹ 51.5 lakh, 16% shortfall; Stephanie ₹ 64.8 lakh, 18% shortfall B) Mark ₹ 47.7 lakh, 22% shortfall; Stephanie ₹ 59.7 lakh, 24.5% shortfall C) Mark ₹ 52.3 lakh, 14% shortfall; Stephanie ₹ 65.9 lakh, 17% shortfall D) Mark ₹ 45 lakh, 26% shortfall; Stephanie ₹ 56.7 lakh, 28% shortfall 11) Roger and Angela will set aside immediately a sum of ₹ 10 lakh towards setting up a fund for vacation. They will start contributing annual investments beginning April 2021 till Roger’s age of 55. The annual investment will be doubled after 14 such investments. You devise an asset allocation for the vacation fund to yield 11% p.a. for the first 15 years and 9.5% p.a. thereafter. What should be the amount of initial annual investment? [5 marks] CFP Final Level: Workbook Page 178

A) ₹ 1,75,500 B) ₹ 1,23,600 C) ₹ 97,900 D) ₹ 1,15,300 12) For the higher education expenses for Mark and Stephanie, Roger starts accumulating funds with monthly investment of ₹ 20,000 in an aggressive asset allocation yielding 12% p.a. After 7 years the allocation is moderated to yield 10% p.a. and while the investment is raised to ₹ 40,000 p.m. After 12 years, the funds accumulated are shifted to suitable debt instruments from which distribution towards higher education is made as proposed. What excess/shortfall of funds you expect after 12 years by following this investment strategy? [5 marks] A) Shortfall ₹28.16 lakh B) Shortfall₹10.12 lakh C) Excess ₹ 7.60 lakh D) Excess ₹ 12.48 lakh 13) Roger asks for your guidance regarding different modes of tax efficient estate planning which can help in creating and distributing family assets. You opine that a Trust would be a more appropriate option because______. [2 marks] A) there is no taxation applicable on trust income B) they have fixed rate of tax which is far lower than tax rates for individual assessees C) future capital gains tax on assets transferred to trust could be lower D) all future earnings from assets transferred to trust are exempt 14) Roger invested ₹ 4 lakh on 20th September 2019 in an Equity Mutual Fund scheme at NAV of ₹ 28.273 per unit. The scheme declared dividend of ₹ 5 per unit, the Record Date being 4th December 2019. The prevailing NAV of the scheme is ₹ 22.367 per unit. If he sells all the units of the scheme today, what would be the implication of this transaction in his IT return of AY 2021- 22? [3 marks] A) ₹12,818 short term capital loss to be set off against capital gains in AY 2021-22 or carried in 8 subsequent years B) ₹83,557 short term capital loss to be set off against capital gains in AY 2021-22 only C) ₹83,557 short term capital loss to be set off against capital gains in AY 2021-22 or carried in 8 subsequent years D) ₹12,818 short term capital loss to be set off against capital gains in AY 2021-22 only CFP Final Level: Workbook Page 179

15) Roger wants to invest the maturity proceeds of all his fixed deposit investments in the 2.50 %- SGB (Sovereign Gold Bonds) of a series quoted at ₹ 2,660 per bond, at a discount of 7.3% to their issue price (issue date: 18-July-2019). Roger wishes to hold SGBs till maturity. Calculate the impact of taxation in the AY2021-22in respect of these transactions if the SGBs could be bought at the quoted rate when FDs mature. Also evaluate capital gains on maturity in the 8-year tenure of these SGBs, if on maturity Gold price in its purest form is expected at ₹ 4,000 per gram. (CII expected in the year of maturity may be considered as 348). [5 marks] A) ₹1,31,556 \"Income from Other Sources\" in AY2021-22; Capital gains of 1,14,030 on maturity B) ₹1,31,556 \"Income from Other Sources\" in AY2021-22; Capital gains on maturity shall be tax- exempt C) ₹24,745 \"Income from Other Sources\" in AY2021-22; Capital gains on maturity shall be tax- exempt D) ₹29,477 \"Income from Other Sources\" in AY2021-22; Capital gains of 1,37,853 on maturity CFP Final Level: Workbook Page 180

Solutions Q1 B) professional requirement under Practice Guidelines of FPSB India Q2 D) Identify other issues that may potentially impact Roger’s ability to achieve financial goals Q3 C) ₹ 54 lakh (approx.) (Solution given below) Current value of the desired house ₹10,000,000 Expected value of new house after 5 years considering ₹13,700,867 6.5% appreciation ₹ 10000000*(1+6.5%)^5 Existing market value of the occupied house 7,500,000 years Expected market value in five years considering ₹10,275,650 p.a. 6.5% appreciation 7500000*(1+6.5%)^5 Loan outstanding on existing home to be settled Principal value of 15-year loan (availed in April 2014) ₹2,400,000 EMI considering 10% p.a. interest for first three years ₹25,791p.m. PMT(10%/12,15*12,-2400000,0,0) Loan outstanding as at end March, 2017 ₹2,158,061 PV(10%/12,(15-3)*12,-25791,0,0) The average rate on loan 1.5% above the Repo rate 8.00%p.a. of 6.5% Revised EMI (average) over the next 8 years ₹23,360p.m. (3 years till Mar’19 + 5 years until sold) PMT (8%/12,(15-3)*12,-2158061,0,0) Loan outstanding as at end March, 2025 (five ₹956,870 years from today) PV(8%/12,(15-3-3-5)*12,-23360,0,0) Amount to be set aside for tax liability, duties ₹1,000,000 and furnishing Amount that can be utilized from sale proceeds to ₹8,318,780 buy new house (10275650-956870-1000000) Amount to be financed for new house ₹5,382,087 (13700867-8318780) CFP Final Level: Workbook Page 181

Q4 A) They must take Mortgage Redemption Insurance or an equivalent term insurance to cover outstanding loans Q5 D) ₹ 105 lakh (approx.) (Solution given below) Current household expenses 40,000 ₹ p.m. Annual expenses in current terms 480,000 ₹ p.a. Inflation rate 5.00% p.a. Return on Debt MF schemes 7.50% p.a. Current age of Angela 31 years PV of 80% of current expenses required till Angela's ₹7,124,721 age of 55 years PV((1+7.5%)/(1+5%)-1,55-31,- 480000*80%,0,1) Household expenses (80% of current) in the 1,238,438 55th year of Angela ₹ 480000*80%*(1+5%)^(55-31) PV at Angela's age of 55, of 80% of then living ₹18,945,605 expenses for remaining 25 years PV((1+7.5%)/(1+5%)-1,80-55,- 1238438*80%,0,1) PV of post-55 years expenses today ₹3,339,684 (income stream drawn from debt funds) 18945605/(1+7.5%)^(55-31) Life cover required to the extent of covering living 10,464,405 expenses as proposed ₹7124721+3339684 (Approximate) ₹ 105 lakh Q6 A) ₹ 147 lakh (Solution given below) Current expenses 480,000 p.a. Rate of return to invest claim proceeds and other assets 7.50% p.a. Inflation 5.00% p.a. Living Expenses 80% of present expenses for the next 50 years 11,420,551₹(PV):1 PV((1+7.5%)/(1+5%)-1,50,- 480000*80%,0,1) CFP Final Level: Workbook Page 182

Higher Education Expenses Mark: ₹ 4 lakh p.a. for 4 years required after 14 years 1,719,344 ₹ (PV):2 at 8% escalation PV((1+7.5%)/(1+8%)-1,4, - 400000*(1+8%)^14,0,1)/(1+7.5%)^14 Stephanie: ₹ 4 lakh p.a. for 4 years required after 17 1,743,447 ₹ (PV):3 years at 8% escalation PV((1+7.5%)/(1+8%)-1,4, - 400000*(1+8%)^17,0,1)/(1+7.5%)^17 Loans outstanding Housing loan 1,785,000 ₹ (PV):4 Car loan 305,000 ₹ (PV):5 Total corpus required to meet the living and HE 16,973,342₹ (PV): 1 to 5 expenses and loans (PV:1 to 5) PV1+PV2+PV3+PV4+PV5 Financial Assets: Cash in bank accounts and FDs ₹570,000 Equity shares and Equity MF scheme investments ₹1,180,000 PPF A/c balance ₹490,000 Total of Financial Assets ₹2,240,000 Therefore, Life cover needed at this stage for Roger ₹14,733,342 16973342-2090000 (Approximate) ₹ 147 lakh Q7 B) ₹ 3.20 crore (approx.) (Solution given below) Monthly household expenses ₹40,000 p.m. Required Annual expenses in the first year after ₹1,383,022 retirement (age 58 of Roger) 12*40000*70%*(1+5%)^(58-29) Rate at which corpus is invested 6.5% p.a. Inflation 5.0% p.a. PV of expenses required from Roger's age of 58 to 70 ₹15,369,121 (corpus: 1) PV((1+6.5%)/(1+5%)-1,12,-1383022,0,1) PV (on retirement) of Provision of Gifts and Charity at 5,871,036 age 70 ₹ (corpus:2) 12500000/(1+6.5%)^12 CFP Final Level: Workbook Page 183

Additional ₹ 10,000 p.m. (current cost) at Roger's 73,920 age of 70 ₹ p.m. 10000*(1+5%)^(70-29) Additional Annual expenses to be provided for medical 887,039 care at Roger's age of 70 ₹ 73920*12 Basic Household expenses at Roger's age of 70 2,483,708 ₹ 1383022*(1+5%)^(70-58) Total Annual expenses required at Roger's age of 70 3,370,747 ₹ 887039+2483708 Corpus (at 70 of Roger) for expenses required from age 16,385,620 70 to 75 of Roger ₹ PV((1+6.5%)/(1+5%)-1,5,- 3370747,0,1) PV of this sum (computed at Roger's age of 70) on 7,696,045 Roger's retirement (at age 58) ₹ (corpus:3) 16385620/(1+6.5%)^(70-58) Expenses further curtailed to 70% for Angela (Roger 3,011,415 dies at 75, Angela survives at 77) ₹ 3370747*(1+5%)^5*70% Corpus at Roger's age of 75 (death) for next three 8,907,600 years of Angela's survival# ₹ PV((1+6.5%)/(1+5%)-1,3,- 3011415,0,1) Corpus (at 58) for expenses required at Roger's age 3,053,637 75 for Angela's survival ₹ (corpus:4) 8907600/(1+6.5%)^(75-58) Total Corpus required at age 58 of Roger 31,989,838 ₹ (corp 1 to 4) #Angela (life exp. 80) survives Roger by 3 years Q8 A) ₹ 57 lakh; 44% curtailment (Solution given below) Corpus worked out in the Initial Scenario: Initial rate at which corpus is invested 6.5% p.a. Initially assumed Inflation rate 5.0% p.a. Current house hold expenses 480,000 ₹ p.a. CFP Final Level: Workbook Page 184

Household expenses budgeted for retirement after 1,383,022 29 yrs (Rogers' age 58) ₹ p.a. 480000*70%*(1+5%)^29 Age of Angela on Roger's retirement (Angela is senior 60 years by 2 years) Life expectancy of Angela 80 years Retirement corpus to last (out of which last 3 years 20 years further reduced to 70%) PV of expenses: Initial 17 years (till the survival of 21,039,890 Roger up to age 75, Angela 77) ₹ PV((1+6.5%)/(1+5%)-1,17,- 1383022,0,1) PV of expenses: Balance 3 years (Angela's living 2,250,048 expenses from age 77 to 80) ₹PV((1+6.5%)/(1+5%)-1,3, - 1383022*70%*1.05^17,0,1)/ (1+6.5%)^17 Initially worked out corpus 23,289,939 ₹ 21039890+2250048 Stress test: lower yield, higher inflation, increased longevity Retirement corpus to last (Roger's 80 with now coincide 22 years with Angela's 82) 80-58 Revised Yield from investing corpus 6.00% p.a. Revised Rate of inflation 5.50% p.a. Retirement corpus required 28,965,848 ₹ PV((1+6%)/(1+5.5%)-1,22,- 1383022,0,1) Cushion built in the corpus 5,675,909 ₹ 28965848-23289939 Alternately, the reduction sought in post-retire expenses (2nd Scenario) Required expenses to be withdrawn in the 1st year 1,112,016 after retirement 1383022*(23289939/28965848) Pre-retirement expenses (at the given rate of inflation 1,975,745 up to retirement) 480000*(1+5%)^29 Curtailment in expenses 43.72% 1-(1112016/1975745) CFP Final Level: Workbook Page 185

Q9 C) The Capital Gains on redeeming these bonds on maturity are exempt from income tax Q10 B)Mark ₹ 47.7 lakh, 22% shortfall; Stephanie ₹ 59.7 lakh, 24.5% shortfall (Solution given below) PPF account balance as on 31-March-2020 ₹490,000 Account's initial maturity (opened in Dec-2014) is 1-April-2030 Number of subscriptions from 31-Mar-2021 to 10 31-Mar-2030 Number of subscriptions from 31-Mar-2031 to 10 31-Mar-2040 (2 extensions) Rate of interest assumed throughout 7.75% p.a. Maximum subscription at the end of every financial ₹150,000 year (for 20 years) Accumulated balance on 31-March-2040 (Mark's age ₹8,857,561 24, Stephanie' age 21) FV(7.75%,20,-150000,-490000,0) The account is maintained without subscription for 5 more years Accumulated balance on 31-Mar-2041 (Mark's ₹9,544,022 age 25 years) 8857561*(1+7.75%) 50% of accumulated amount withdrawn for Mark's ₹4,772,011 marriage expenses 9544022/2 Estimated expenses (current ₹ 10 lakh, escalating ₹6,108,808 by 9% p.a.) for Mark 1000000*(1+9%)^21 Shortfall in meeting Mark's marriage expenses 21.88% 1-(4772011/6108808) Remaining amount in PPF accumulated till ₹5,969,710 31-Mar-2044: Stephanie's marriage (9544022/2)*(1+7.75%)^3 Estimated expenses (current ₹ 10 lakh, escalating ₹7,911,083 by 9% p.a.) for Stephanie 1000000*(1+9%)^24 Shortfall in meeting Stephanie's marriage expenses 24.54% 1-(5969710/7911083) Q11 D) ₹ 115,300 (Solution given below) CFP Final Level: Workbook Page 186

The current cost of annual vacation (1-April-2020); ₹150,000 Roger's age 29 Cost escalation provisioned in the vacation expenses 7.00% p.a. Lump sum invested on 1-April-2020 in the fund ₹1,000,000 (Roger's age 29) Total annual investments from 1-April-2021 to 26 years 1-April-2046 (till Roger is 55) Total withdrawals from 1-April-2025 to 1-April-2049 25 years (till Roger is 58) Total investment period (1-April-2020 to 1-April-2049) 29 years Return expected from Asset allocation in the first 11.00% p.a. 15 years (Initial + 14 investments) Return expected from Asset allocation in remaining 9.50% p.a. period Vacation Expenses enumerated Vacation expenses to be first drawn after 5 year, ₹210,383 i.e. on 1-April-2025 PV of expenses (first 11 years, 1-Apr-2025 to ₹1,939,223 1-Apr-2035) drawn from 11% return PV((1+11%)/(1+7%)-1,11,-210383,0,1) PV as on 1-April-2021 1,277,426₹ (PV:1) 1939223/(1+11%)^4 Likely vacation expenses on 1-April-2036 ₹442,825 150000*(1+7%)^16 PV of expenses (next 14 years, 1-Apr-2036 to ₹5,358,498 1-Apr-2049) drawn from 9.5% return PV((1+9.5%)/(1+7%)-1,14, -442825,0,1) PV as on 1-April-2021 1,135,291₹ (PV:2) 5358498/((1+11%)^14*(1+9.5%)) Total PV of all vacations provisioned (Pv:1 to 2) ₹2,412,718 1277426+1135291 Accumulation: Initial sum invested (1-April-2020) in the needed ₹1,000,000 fund for vacation Accumulation of initial sum as on 1-April-2021₹ 1,110,000 (1000000*1.11) CFP Final Level: Workbook Page 187

Remaining amount to be provisioned by way of ₹1,302,718 annual investments 2412718-1000000 Let us assume that initial investment installment ₹100 (first 14) be PV of first 14 investments of ₹ 100 from 1-Apr-2021 ₹774.99 to 1-Apr-2034 PV(11%,14,-100,0,1) investments in the latter part, 12 annual investment ₹200 (from 1-Apr-2035 to 1-Apr-2046) PV of next 12 investments of ₹ 200 from ₹354.83 1-Apr-2035 to 1-Apr-2046 PV(9.5%,12,-200,0,1)/(1+11%)^14 PV of all 26 Annual Investments as provisioned ₹1,129.81 774.99+354.83 Amount of Annual Investment equivalent to the ₹115,304 assumption of ₹ 100 (1302718/1129.81)*100 Q12 B) Shortfall₹ 10.12 lakh (Solution given below) Higher Edu. expenses, in current terms, of Mark ₹400,000 p.a. (age 4) at his age 18, 19, 20 & 21 Higher Edu. expenses, in current terms, of Stephanie ₹400,000 p.a. (age 1) at her age 18, 19, 20, 21 Cost escalation for higher education expenses 8.00% p.a. Expenses drawn from a fund invested in debt 7.50% p.a. instruments at Accumulation period through monthly investments 12 years in Asset Allocation Fund Present Value of Higher Education Expenses after 12 years PV of Higher Edu. Expenses of Mark at his age of ₹4,732,399 18 (after 14 years) in Risk Free PV((1+7.5%)/(1+8%)-1,4,- 400000*(1+8%)^14,0,1) PV of such expenses after 12 years when drawn from 4,095,099₹ PV:1 debt investments 4732399/(1+7.5%)^2 CFP Final Level: Workbook Page 188

PV of Higher Edu. Exp. of Stephanie at her age of ₹5,961,460 18 (after 17 years) in Risk Free PV((1+7.5%)/(1+8%)-1,4,- 400000*(1+8%)^17,0,1) PV of such expenses after 12 years when drawn from 4,152,506₹ PV:2 debt instruments 5961460/(1+7.5%)^5 Total PV of Higher Edu. Exp. After 12 years in Risk 8,247,605₹ PV:(1+2) Free instruments 4095099+4152506 Accumulation Aggressive Asset Allocation (year 1 to 7) 7 years Return expectation (aggressive) 12.00% p.a. Monthly investment ₹20,000 Accumulation in 7 years ₹2,576,027 FV((1+12%)^(1/12)-1,12*7,-20000,0,1) Moderate Asset Allocation (year 8 to 12) 5 years Return expectation (aggressive) 10.00% p.a. Monthly investment ₹40,000 Accumulation in 12 years ₹7,235,587 FV((1+10%)^(1/12)-1,12*5,-40000,- 2576027,1) Shortfall expected after 12 years ₹-1,012,018 7235587-8247605 Q13 C) future capital gains tax on assets transferred to trust could be lower Q14 A) ₹ 12,818 short term capital loss to be set off against capital gains in AY 2021‐22 or carried in 8 subsequent years (Solution given below) Investment amount on 20‐Sep‐2019₹ 400,000 Investment made at a price ₹ 28.273 Units allotted 14,147.773units (400000/28.273) Dividend received ₹ 5 per unit (RD 4‐Dec‐2019 is within 3 months of purchase date) 70,739 (14147.773*5) Price prevailing today (1‐Apr‐2020) 22.367 Redemption proceeds (within 9 months of dividend) 316,443 (14147.773*22.367) Short term Loss in the transaction (83,557) 316443‐400000 CFP Final Level: Workbook Page 189

Under Section 94(7) dividend stripping applies in this case Hence, short term capital loss allowable in AY 2021-22-12,818 (‐83557+70739) Note: As per Section 94(7), dividend stripping is applicable only if: 1. Shares or MF units are bought within 3 months of dividend record date 2. Shares are sold within 3 months of dividend record date/MF units are sold within 9 months of dividend record date 3. There is short term capital loss (STCL) on such sale 4. Dividend received is less than the STCL on sale If it is applicable, the amount of dividend received is deducted from the total STCL figure for shares/MF units sold. Balance will be either set‐off against capital gains, if any, or carried forward to next assessment year. Q15 C) ₹ 24,745 \"Income from Other Sources\" in AY2021-22; Capital gains on maturity shall be tax‐exempt (Solution given below) As on 31‐Mar‐2020 Amount cumulated in ₹ 2 lakh, 3‐year fixed deposit made on ₹ 260,663 1‐Jul‐2017 @9.75% p.a. 200000*(1+9.75%/4)^11 Amount cumulated in ₹ 1 lakh, 2‐year fixed deposit made on ₹ 117,355 1‐Jul‐2018 @9.25% p.a. 100000*(1+9.25%/4)^7 Amount cumulated in ₹ 1 lakh, 1‐year fixed deposit made on ₹ 106,707 1‐Jul‐2019 @8.75% p.a. 100000*(1+8.75%/4)^3 Maturity proceeds to be received as on 1‐Jul‐2020 ₹ 267,016 Amount cumulated in ₹ 2 lakh, 3‐year fixed deposit made on 200000*(1+9.75%/4)^12 1‐Jul‐2017 @9.75% p.a. ₹ 120,069 Amount cumulated in ₹ 1 lakh, 2‐year fixed deposit made on 100000*(1+9.25%/4)^8 1‐Jul‐2018 @9.25% p.a. ₹ 109,041 Amount cumulated in ₹ 1 lakh, 1‐year fixed deposit made on 100000*(1+8.75%/4)^4 1‐Jul‐2019 @8.75% p.a. CFP Final Level: Workbook Page 190

Total maturity proceeds of Fixed Deposits ₹ 496,126 (267016+240137+109041) Interest accrued and receivable in the FY20‐21₹ 11,402 496126‐(260663+117355+106707) ₹ 2,660 Current Quoted price of SGB (issue date: 18‐July‐2019) Number of SGBs to be bought at the quoted price 186.51 bonds(round-off 186) Coupon to be received on bonds (half‐yearly on 18‐Jul'20 and 18‐Jan'21) 2.50% p.a. Discount to issue price 7.30% Face value per unit of SGB ₹ 2,869 2660/(1‐7.3%) Face value of SGBs to be purchased ₹ 533,722 2869*186 interest to be received on bonds in the FY20‐21₹ 13,343 533722*2.5% Total interest due to these transactions under 'Income from Other Sources' ₹ 24,745 11402+13343 Capital Gains on maturity of the SGBs in July 2027 shall be exempt from income tax CFP Final Level: Workbook Page 191

Case Study - 7 (Urvashi) (Reference Date: 1st April, 2020) Ms. Urvashi, aged 34 years, is employed in a senior position in a Mumbai-based firm. She has a son Suryansh aged 14 years and a daughterDhruvi aged 9 years. She is the sole guardian of her children pursuant to her recent divorce. She is currently residing in a rented house. Suryansh has just passed 8th standard while Dhruvi is studying in 3rd standard. She has approached you, a CFPCM practitioner, for preparing a Financial Plan for her family. She has plans to retire early from service at her age of 55 yea₹ She shares the following financial information with you: Salary Income (2020-2021) Annual (₹ lakh) Basic Salary : 25.00 Employer’s contribution to NPS : 2.50 HRA : 5.00 Other allowances and reimbursements : 3.00 Regular Outgoings: Monthly (₹) Basic Household Expenses : 40,000 Services availed : 18,000 School Fees : 25,000 House Rent : 35,000 Power, Telecom & Fuel : 12,000 Car Loan EMI : 18,275 Outgoings towards investment and insurance: (₹) Equity Mutual Fund17 : 25,000 (Systematic Investment Plan - SIP) Debt Mutual Fund2 : 15,000 (Systematic Investment Plan - SIP) Insurance Premium3 : 38,759 Health Insurance Premium4 : 27,631 1 Diversified open-ended growth equity schemes; started 3 years ago with initial investment of Rs. 1 lakh; monthly SIP 2 Long-term long duration debt schemes with growth option, started 2 years ago, initial investment of Rs. 1 lakh; monthly SIP 3 Total Cover Rs. 1.5 crore across three policies of Rs. 50 lakh each, all term plans having cover up to Urvashi’s age of 50, 53 and 58 year respectively; annual premium 4 Total cover Rs. 20 lakh on two policies, one is floater Rs. 10 lakh cover, the other in Urvashi’s name; annual premium CFP Final Level: Workbook Page 192