PART-4 CASE STUDIES

Rate of interest 10.50% EMI from 01/02/2022 to 01/10/2044 47710 (End, N=273, I=10.50%, PV=-4947175, PMT=47710, FV=0, P/y=12, c/y=12) Q4 C) ₹ 54621 (Solution given below) As the funds for higher education are required for consecutive years after 6 years and the requisite funds for a particular year are transferred one year prior in the debt fund, the funds transferred from equity fund to debt fund would be 5,6,7,8 and 9years from the now. Thus accumulation in the equity would be for 9 years i.e. up to last switch. =₹ 8 lakh required after 6 years at 8% cost escalation 1417249 = (800000*(1+10%)^6) Amount transferred to debt fund from equity fund a year prior, i.e. year 5= ₹ 1318371 = (1417249/1.075) PV of such fund now if accumulated in an equity fund 782389 (1318371/1+11%^5) =₹ 8 lakh required after 7 years at 8% of cost escalation 1558974 (800000*(1+10%)^7) Amount transferred from to debt fund from equity fund a year prior, i.e. year 6 = ₹1450208 (1558974/1.075) PV of such fund now if accumulated in an equity fund 775340 (1450208/1+11%^6) =₹ 8 lakh required after 8 years at 8% cost escalation 1714871 (800000*(1+10%)^8) Amount transferred to debt fund from equity fund a year prior, i.e. year 7 = ₹ 1595229 (1714871/1.075) PV of such fund if accumulated in an equity fund 768335 (1595229/1+11%^7) =₹ 8 lakh required after 9 years at 8% cost escalation 1886358 (800000*(1+10%)^9) Amount transferred to debt fund from equity fund a year prior, i.e. year 8 = ₹ 1754752 (1886358/1.075) PV of such fund now if accumulated in an equity fund 761433 (1754752/1+11%^8) =₹ 8 lakh required after 10 years at 8% cost escalation 2074994 Amount transferred to debt fund from equity fund a year prior, i.e. year 9 = ₹ 1930227 (2074994/1.075) PV of such fund now if accumulated in an equity fund 754574 (1930227/1+11%^9) PV of total funds required to be accumulated 3842071 (782389 +775340+768335+761433+754574) SIP for 9 years to accumulate this amount= 54621 Set = begin 51

N = 9*12 I =11 PV = -3842071 PMT =? (54621) PV= 0 P/y=12, C/y=1 Q5 C) Householder’s Policy and Home loan Protection plan Q6 B) The scope and limitations of the services of the CERTIFIED FINANCIAL PLANNERCM practitioner needs to be disclosed in the beginning, specifically in writing, by the professional to the client. Q7 C) ₹ 769834 60, 000 P.m. (Solution given below) Expense required after retirement, inflation-linked Rate of return 8% Inflation 5.5% Real rate of return 2.3697% Current age of Sahanubhuti 34 years Retirement age 60 years Life expectancy 85 years Expense in the 1st month after retirement 241388 (60000*1+5.5%^26) Retirement corpus to be accumulated 54866067 (Begin, N=25*12, I=2.3697, PV=? (54866067), PMT=241388, FV=0, P/y=12, C/y=1) Additional 1% return targeted at 9% Revised RRR 3.3175% Revised corpus needed for expense 49571557 (Begin, N=300, I=3.3175, PV=? PMT=241388, FV=0, P/y=12, C/y=1) Additional corpus each provisioned 10000000 Additional corpus for ₹ 1 crore at 70 years 4224108 (10000000/ (1+9%) ^10) Additional corpus of ₹ 1 crore at 85 years 1159678 (10000000/ (1+9%) ^25) Revised corpus needed to meet goals 54955343 (49571557+4224108+1159678) 52

Additional funds required at retirement to fund 89276 post retirement goals (54955343-54866067) Alternatively if the funds are not arranged the shortfall 769834 expected in bequeathing to her daughter would be (89276*(1+9%) ^25) Q8 D) ₹ 123640 (Solution given below) 10000000 Amount of Retirement fund accumulated for annuity 20 years Total term 8% Yield minimum expected from annuity 100 Suppose the monthly annuity begin with 8397 PV of the amount at the age 60 (60-70) Set = Begin 16794 N = 10*12 I = 8% 7779 (16794/1.08^10) PV =? 16176 (8397+7779) PMT = -100 61820 (100*10000000/16176) FV = 0 123640 (61820*2) P/Y=12, C/Y=1 Monthly annuity Double in the subsequent 10-year annuity ₹ 45565 PV of amount at the age 70 (70-80) ₹5 lakh N = 10*12 I = 8% PV =? 16793 PMT = -200 FV = 0 P/Y=12, C/Y=1 PV of the amount at the age of 60 Total amount required at the age of 60 Amount of monthly annuity in the initial period Therefore, amount in the subsequent 10-year period Q9 B) 4.722% (Solution Given Below) Annual premium Sum assured 53

Term 15 years Term premium ₹ 1322 Survival benefits after 3years/6 years/9 years/12 years = 15% of sum assured = 75000 Annual effective investment = 45565-1322 ₹ 44243 Maturity amount = 40% of S.A + reversionary bonus (40/1000*500000*15) + terminal bonus (10% of 500000) = 200000+300000+50000 ₹ 550000 To calculate the IRR, we use “CASH” function 1 = -44243 2 = -44243 3 = -44243 4 = 30757(75000-44243) 5 = -44243 6 = -44243 7 = 30757(75000-44243) 8 = -44243 9 = -44243 10 = 30757(75000-44243) 11 = -44243 12 = -44243 13 = 30757(75000-44243) 14 = -44243 15 = -44243 16 = 550000 Solve IRR = 4.722% Q10 A) ₹ 1701867 ₹ 12 lakh (Solution Given Below) 8% Current amount of world tour Cost escalation Inflated amount after 11 years ₹ 2797967 (1200000*1.08^11) Amount outstanding as on 01/04/2019 Debt fund ₹ 5.98 lakh Rate of return on debt MF 7.5% Liquid MF 6% 54

Balance at age 38 ₹ 910274 (Begin, N=4*12, I=7.5%, PV=-598000, PMT=-2000, FV=? , P/y=12,C/y=1) Balance at age 42 ₹ 1383137 (Begin, N=4*12, I=7.5%, PV=-910274, PMT=-3000, FV=?, P/y=12,C/y=1) Balance at age 43 ₹ 1486872 (1383137*1.075) One fourth is redeemed and invested in liquid scheme at this stage, i.e. at 43 years =Balance at age 44 years in liquid scheme ₹ 394021 (371718*1.06) Balance at age 44 in debt fund scheme ₹1198791 (1486872*3/4)*(1+7.5%) =Balance at age 45 years in liquid scheme ₹735342 (394021+1198791/4)*(1+6%) Balance at age 45 years in debt scheme ₹966525 (1198791*3/4)*(1+7.5%) Corpus accumulated for the world tour at the age of 45 966525+735342 =₹ 1701867 Q11 A) ₹ 26146322 ₹45 lakh (Solution Given Below) ₹10.5 lakh Gross salary per annum ₹3450000 Tax paid ₹1897500 Net income in current year = 4500000-1050000 26 years Income contribution to the family 9% Remaining work life 5% Investment yield ₹ 32146322 Expected rate in increase in salary PV of future income Set = Begin N = 26 I = 3.8095% PV =? PMT = -1897500 FV = 0 P/Y-C/Y=1 55

Sum assured (term + money back) ₹ 60 lakh Additional insurance cover required = ₹ 32146322-6000000 ₹ 26146322 Q12 3) A, C and D Q13 A) LTCG ₹ 41400 ₹56, 400 (1200*47) ₹72 000 (1200*60) (Solution given below) ₹-15600 (56400-72000) For 12, 00 shares ₹6000 (0.50*10)*1200 Sale consideration (on 20th October 2019) Less; - cost of acquisition (on 10th June 2019) ₹20000 (800*25) Short term capital loss (STCL) ₹48000 (800*60) Dividend received ₹-28000 (48000-20000) Section 94(7) is applicable ₹4000 ((0.50*10)*800) For 800 shares Sale consideration (on 20th December 2019) ₹79000 Cost of acquisition (on 10th June 2019) ₹9600 (15600-6000) Short term capital loss (STCL) ₹28000 Dividend received ₹41400 (79000-9600-28000) Section 94(7) is not applicable LTCG on sale of gold ₹394091 (300000*289/220) Less; - STCL on sale of 1200 shares ₹1575000 Less; - STCL on sale of 800 shares ₹1180909 Net LTCG for AY 2020-21 ₹500000 ₹374892 Q14 B) ₹ 161200 (1180909*500000/1575000) (Solution Given Below) ₹806017 (1131522-374892) Indexed cost of acquisition Sales consideration LTCG Invested in new house LTCG exempted Taxable LTCG 56

Tax on LTCG ₹161203 (806017*0.20) Or ₹ 161200 (round off) Q15 B Option 2 (Solution Given Below) In option 2 investor gets indexation benefit and will pay only 20% tax. But in option 1 maturity amount will be less than FMP as TDS will be deducted every quarter and balance amount is invested. Besides it interest will be taxed at 30%. Additional questions 40000 p.m. 480000 p.a. Q1 A) Rs. 6599051 Current Monthly household exp 50% for Shambhavi 20000 240000 p.a. Present Age of Shambhavi 12 Marriage Age of Shambhavi 25 Debt Fund Rate 7.5% Inflation Rate 5% PV of household expenses (CMPD; N=13,I=2.38..,PMT=240000, FV=0,P/Y=C/Y=1,PV=solve)=2719703 PV of boarding school expenses (CMPD;N=6, I=-2.272…., PMT=240000,FV=0, P/Y=C/Y=1,PV=solve)=1526363 Today’s marriage expense 2500000 Marriage inflation rate 7% FV of marriage expense 6024613 (N=13, I=7, PV=-2500000, PMT=0, FV= Solve) PV of marriage expense 2352985 (N=13, I=7.5, PV=-Solve, PMT=0, FV= 6024613) Total insurance cover = 2719703+1526363+2352985 = Rs.6599051 Q2 B) Rs.37995826 60 Retirement age 25 post retirement life 40000x12=480000 Current expenses(Yearly) 34 current age 5.00% Inflation 7.50% Debt return 57

Real rate of return 2.380…% FV of household expenses at 60 1706723 CMPD;N=26, I=5, PV=-480000, PMT=0, P/Y=C/Y=1, FV=solve(1706723) Retirement corpus required at 60 32636766 CMPD;N=25,I=RRR(2.380…), PV=solve(-32636766), PMT=1706723,FV=0, P/Y=C/Y=1) FV of charity at 70 5791816 CMPD;N=36, I=5, PV=-1000000, PMT=0,FV=solve(5791816), P/Y=C/Y=1 PV of charity at 60 2810154 CMPD;N=10, I=7.5, PV=solve(-2810154), PMT=0,FV=5791816, P/Y=C/Y=1 FV of another charity at 80 9434258 CMPD;N=46, I=5, PV=-1000000, PMT=0,FV=solve(9434258), P/Y=C/Y=1 PV of another charity at 60 2220948 CMPD;N=20, I=7.5, PV=solve(-2220948), PMT=0,FV=9434258, P/Y=C/Y=1 PV of estate goal (2000000) at 60 327958 CMPD;N=25, I=7.5, PV=solve(-327958), PMT=0,FV=2000000, P/Y=C/Y=1 Hence retirement corpus = 32636766+2810154+2220948+327958 = Rs.37995826 Q3 C) ₹ 5736 Current age 34 Retirement age 60 Life expectancy 85 Total inflation till retirement 5+2 = 7% Current expenses 40000x12=480000 Expense at age 60 2787529 CMPD;N=26, I=7, PV=-480000, PMT=0, P/Y=C/Y=1, FV= solve(2787529) Retirement corpus required at 60 56083908 CMPD;N=25, I=1.904… , PV=solve(-56083908), PMT=2787529, P/Y=C/Y=1, FV= 0 FV of equity mutual fund 48934161 Shortfall = 56083908 – 48934161= 7149747 Suppose monthly investment begin with Rs.100 Ratio of Equity and debt for 10 years 80:20 FV of equity investment after 10 years 16994 58

CMPD;N=10x12, I=11, PV=0, PMT=-80, P/Y=12, C/Y=1, FV= solve(16994) FV of debt investment after 10 years 3532 CMPD;N=10x12, I=7.5, PV=0, PMT=-20, P/Y=12, C/Y=1, FV= solve(3532) Total FV after 10 years = 16994+3532 = 20526 Ratio of Equity and debt for next 10 years 60:40 FV of equity investment after next 10 years 47714 CMPD;N=10x12, I=11, PV=-20526x.60, PMT=-60, P/Y=12,C/Y=1, FV= solve(47714) FV of debt investment after next 10 years 23985 CMPD;N=10x12, I=7.5, PV=-20526x.40, PMT=-40, P/Y=12, C/Y=1, FV= solve(23985) Total FV after 20 years = 47714+23985= 71699 Ratio of Equity and debt for next 10 years 40:60 FV of equity investment after next 5 years 51491 CMPD;N=5x12, I=11, PV=-71699x.40, PMT=-40, P/Y=12, C/Y=1, FV= solve(51491) FV of debt investment after next 5 years 66110 CMPD;N=5x12, I=7.5, PV=-71699x.60, PMT=-60, P/Y=12, C/Y=1, FV= solve(66110) Total FV after 25 years = 51491+66110= 117601 Total FV after 26 year = 117601x1.06= 124657 SIP required = (7149747x100)/124657= ₹ 5736 4. A) 5. D) Cost of world tour today ₹1200000 Cost after 11 years from now ₹2797967 CMPD;N=11, I=8, PV=-1200000, PMT=0, P/Y=1, C/Y=1, FV= solve(2797967) 60% of these expenses 2797967x0.60 = 1678780 Monthly investment required ₹6756 CMPD;N=11x12, I=11, PV=0, PMT=solve(-6756) , P/Y=12, C/Y=1, FV= 1678780 Case Study – D (Reference Date: 1st April, 2019) Mahesh and Neelam approached you, a CFPCM practitioner for preparing a Financial Plan to achieve their financial goals. Mahesh, aged 45 years, is working in Bengaluru for an MNC, at a managerial level. His wife Neelam, aged 42 years, is working in a Private Company and has gross income of ₹ 5 lakh p.a. The 59

gross salary of both Mahesh and Neelam is likely to grow at 7% p.a. They are married for 22 years now. The couple has two children - daughter Sapna, aged 18 years, pursuing her Graduation in Economics, and son Varun, aged 16 years, studying in 12th standard. Sapna intends to pursue her post-graduaton and doctorate in economic sciences from a foreign educational institution. Varun has inclination to become a Doctor. The family’s monthly household expenses are ₹ 60,000 excluding EMI on loans and Insurance premiums. Mahesh’s family along with his mother are currently staying in a house which was owned by his father, who passed away in December 2018. The house is valued at ₹ 75 lakh today. Mahesh has a term insurance of ₹ 50 lakh (for 20 years, annual premium ₹ 13,985), the term expires 15 years from now. Both are covered under Group Medical Insurance by their respective employers. They additionally have a ₹ 10 Lakh family floater policy (annual premium ₹ 20,386 paid by Mahesh). Salary Breakup of Mahesh for FY 2019-20 Components Annually (₹) Basic 7,16,000 House Rent Allowance 1,80,000 Dearness Allowance 2,50,000 Transport Allowance 96,000 Medical Reimbursement 15,000 Entertainment Allowance 60,000 Total 13,17,000 The couple’s assets as on 31st March 2019 1. Cash in Hand ₹ 50,000 2. Bank balance ₹ 2,50,000 3. Diversified Equity Mutual Fund units at market value ₹ 12.78 lakh 4. Equity Shares at market value ₹ 25.83 lakh 5. Debt Mutual Fund units at market value ₹ 12.17 lakh 6. PPF A/c balance ₹ 8.25 lakh (Mahesh), ₹ 3.15 lakh (Neelam), both maturing on 1st April 2023 7. ELSS Mutual Fund scheme (growth option), ₹ 75,000 invested on March 20, 2017 at NAV ₹ 14.81 and ₹ 75,000 invested on February 3, 2019 at NAV of ₹ 16.95. The current NAV is ₹ 16.26 per unit. 8. A separate house in joint ownership of Mahesh and Neelam with respective shares of 75% and 25%. This house has two floors and is let out for rent of ₹ 12,000 p.m. each floor Present Market Value of this House is ₹ 1 crore ( Mahesh and Neelam had jointly taken a housing loan of Rs. 30 Lakh in the ratio of their ownership of the house which cost them Rs. 47.50 Lakh on 1st April 2012. The loan is for 15 years at a fixed rate of interest of 9.25% p.a. They pay EMI proportionate to their ownership on the last day of every month 60

9. Gold Ornaments at market value ₹ 8.35 lakh 10. Car at market value ₹ 2.60 lakh 11. 100 units of Sovereign Gold Bonds of 8-year maturity subscribed on 28th December 2018 at ₹ 2987 per unit; market price quoted on 31st March 2019 is ₹ 2861; interest @ 2.50% p.a. payable semi-annually on 30 June and 31 December 12. Government Securities (Gilt) MF Scheme; open ended scheme; Invested ₹ 4 lakh in New Fund Offering on 23rd March 2017; NAV on 31 March 2019 is 12.642 13. Money back insurance plan of 20 year term on the life of Mahesh with sum assured of ₹ 5 Lakh (Annual premium Rs. 28,875, due in March every year, paid 16 premiums. The policy provides 25% of basic sum assured each on expiry of 5th, 10th, 15th years, and on maturity of the policy. (Reversionary Bonus accrued: Rs. 2,43,100) 14. Unit linked insurance plan (aggressive allocation; 70% to equity) of 10 years in the name of Mahesh with sum assured of ₹ 5 lakh (Annual premium of Rs. 35,000 p.a. due in end of April every year; six installments paid till date, this year premium due. (current unit balance 15,554.221 units, NAV: Rs. 16.56 per unit) Liabilities as on 31st March 2019 : ₹ 20.89 Lakh Housing loan outstanding Goals & Aspirations 1) Plan for Varun’s medical education expenses for 6 years, beginning a year from now, estimated to be annually ₹ 10 lakh (current costs) with cost escalation at 8% p.a. 2) Plan for Sapna’s Post Graduation from abroad after three years, estimated to cost lump sum ₹ 75 lakh (current costs) cost escalation at 10% p.a. 3) Create a separate fund to provide holiday expenses annually throughout their retired life, amounting to ₹ 75,000 in current terms and escalating at 7% p.a. 4) To accumulate funds for marriage of Varun and Sapna. At current costs, they will require ₹ 10 lakh and ₹ 15 lakh respectively for the marriages of Varun and Sapna when they individually reach 28 years of age; such expenses escalate at 7% p.a. 5) Build a retirement corpus for inflation-adjusted current household expenses, retirement on Mahesh’s age of 60 years, expenses required till Neelam’s survival. Life Expectancy Mahesh : 80 years Neelam : 82 years Assumptions regarding pre-tax returns in various asset classes: 1) Equity & Equity MF schemes/ Index ETFs : 11.00% p.a. 2) Balanced MF schemes : 9.50% p.a. 61

3) Bonds/Govt. Securities/ Debt MF schemes : 7.50% p.a. 4) Liquid MF schemes : 6.00% p.a. 5) Gold and 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: 1. Inflation : 5.00% p.a. 2. Expected return in Risk free instruments : 5.50% p.a. 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 62

Case Study - D (Mahesh & Neelam) (Reference Date: 1st April 2019) Q1 You have explained Mahesh that while underwriting the Insurer may counter the effects of ____________ insurers (to the extent that laws permit) ask a range of questions and may request Medical or other reports on individuals who apply to buy insurance, so that the price quoted can be Varied accordingly, and any unreasonably high or unpredictable risks rejected. (2 Marks) A) Moral Hazard B) Morale Hazard C) Adverse Selection D) Uberrimae fidei Q2 Prior to providing any Financial Planning services, you a Financial Planning practitioner and Mahesh, as your client shall mutually define the scope of the engagement. The letter of engagement would define the scope of engagement by discussing (2 Marks) i) Identification of the service(s) to be provided ii) Financial Planning practitioner’s compensation arrangement(s) iii) Analysis and evaluation of client’s current situation iv) Determining the clients and the Financial Planning practitioner’s responsibilities; v) Establishing the duration of the engagement; vi) Determine the strategies to achieve financial goals A) i), ii), iv) and v) B) ii), iii), iv) and vi) C) i), ii), iii), iv) and v) D) i), ii), v) and vi) Q3 You suggest Mahesh to achieve the goal for accumulation of funds for marriage expenses by starting a monthly SIP immediately along with the lump sum of ₹5 lakh from existing funds available in an aggressive fund for 7 years and shift to debt investments 3 years prior to daughter marriage. What is approximate monthly investment required? (3 Marks) A) ₹25719 B) ₹22289 C) ₹33268 D) ₹45259 Q4 Due to Global Equity Market condition Mahesh is not satisfied with the return generated by ULIP. He want to surrender his ULIP. A premium allocation charges applicable in the policy is 20% for the first 4 years, 10% for the remaining yea₹ Mortality charges of ₹ 1.95 per thousand, sum assured of 5 lakhs and administrative charges ₹750 P.A charged in the beginning of the year from the fund value and is fixed for the whole term of the policy. Fund management charges 1.75% of closing fund value is deducted at the end of every year. He wants to know from you what should be the 63

surrender value of his policy. He had opted for aggressive. ULIP has given 9% return in Aggressive option and 6% return in debt option since inception of policy. (5 Marks) A) ₹209514 B) ₹220300 C) ₹240300 D) ₹210300 Q5 Mahesh wants to sell his current holding of gold ETF on the prevailing price of ₹2415 per unit. If all units are sold at the sale price prevailing on 2nd April 2019, what would be the post-tax gains in this transaction for AY 2020-21? And also calculate the return obtained on investment. (3 Marks) A) 10.67 % B) 10.85% C) 10.96% D) 10.98% Q6 You observed that your client has some life insurance cover. He tells you that future living expenses of his family must be insured along with his essential goal of medical/post-graduation of his son and daughter. You suggest the client that the aggregate insurance cover should suffice to meet education expenses when due, along with inflation adjusted living (household) expenses to the extent of 80% of their current expenses for immediate next 10 years and 50% for the succeeding 23 yeas. You compute the additional insurance cover amount needed which comes to ____.(4 Marks) A) ₹1.85 crore B) ₹1.2 crore C) ₹1 crore D) ₹90 lakhs (Assume 7.5% rate of return is expected for the funds to be invested) Q7 As part of the retirement strategy, you advise client to invest a sum of ₹40 000 and ₹20000 immediately in his and spouse's PPF account respectively and increase this investment by 20% every year in the beginning of the financial year in all future years till normal maturity. The contributions are rounded up to the nearest thousand. You also advise to extend their respective accounts for two terms of 5 years each beyond the normal maturity by contributing maximum permissible amounts in both the accounts. Further extension till retirement without contribution. Find the combined corpus of accounts when the client retires. (Maximum subscription amount per year is ₹1, 50, 000). (5 Marks) A) ₹9354206 B) ₹8979990 C) ₹8700000 D) ₹9800000 64

Q8 Mahesh has started investing ₹30, 000 p.a. in a 10% p.a return instrument with immediate effect, and increase the contribution by 20% every year of the prior year investment amount. Consider accumulated corpus in PPF in previous question. If the expenses post retirement are curtailed by 50%, what maximum inflation would sustain his corpus till he survives, if the corpus is invested at 7% p.a.? (Take lifestyle inflation 1.75% above the normal inflation only in pre-retirement period). (4 Marks) A) 2.41% B) 1.71% C) 9.97% D) 9.14% Q9 Mahesh approaches you with 500000 stating that he would like to develop a financial plan and invest in the market. He is investing first time and he would to choose an appropriate account. What is the CFP professional most appropriate course of action? (2 Marks) A) Open a brokerage account with margin B) Determine whether a client has a consumer debt C) Determine whether a client has a sufficient insurance coverage D) Invest in mutual fund for the current financial year Q10 Before finalizing the Financial Plan, Mahesh’s wife tells you that she wants to entrust the estate issues to a solicitor, who is a friend of Mahesh. Which of the following is your best stand? (2 Marks) A) Estate issues being substantial in the case, you maintain that the Financial Plan cannot be a Integrated one if the same is outside your purview, hence decline. B) This is permissible subject to such an arrangement finding an explicit mention in the Financial Plan For the said activity. C) This is permissible subject to the advice of the solicitor being integrated into the Financial Plan and Monitored along with the Plan. D) You agree to the arrangement subject to the advice of solicitor made known to you so that you modify the Financial Plan accordingly. Q11 Mahesh and Neelam want to create a separate fund for annual holiday vacation, after his retirement till Mahesh expected life. If annual vacation expenses are withdrawn from the corpus @ 9% p.a. Current cost of vacation is ₹75000 p.a, cost escalating at the rate of 7%. You suggest an investment strategy by investing certain equal amount in the Debt & Equity fund and the double the monthly investment at the every 5 years till his age of 60. He wants to know amount he would invest in the last block of five years? (5 Marks) A) ₹19188 B) ₹19438 C) ₹19884 D) ₹19446 65

Q12 Mahesh and Neelam availed housing loan of ₹30 lakh from a bank in April 2010. 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 8000 p.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) 612000 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. 66

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 67

Solutions Q1 C) Adverse Selection Q2 A) i), ii), iv) and v) Q3 A) ₹ 23382 (Solution Given Below) 18 years Present age of daughter 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 PMT =? = -23382 FV= 3944002 P/y=12, c/y=1 68

(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 yea₹ 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 Premium Amt Policy Mortali Fund Investm Fund value Fmc Outstan premium allocatio investe admin ty value ent c/f (before charge ding 4/13 to charg after fund 4/14 35000 n d charges charges return fmc) s value 35000 charges es 4/14 to 35000 28000 975 26275 9% 28639.75 501.19 28138.5 4/15 35000 7000 750 5 35000 4/15 TO 35000 7000 28000 750 975 54413.5 9% 59310.76 1037.9 58272.8 4/16 53 2 4/16 TO 7000 28000 750 975 84547.8 9% 92157.12 1612.7 90544.3 4/17 24 7 4/17 TO 7000 28000 750 975 116819. 127333.11 2228.3 125104. 4/18 78 37 9% 2 4/18 TO 165862. 4/19 3500 31500 750 975 154879. 9% 168818.96 2954.3 62 78 1 209514. 3500 31500 750 975 195639. 9% 213247.18 3731.8 35 62 2 Q5 A) 10.67% (Solution Given Below) Number of units 300 units Cost of acquisition (17th October 2010) 983 per units Sale price (2nd April 2019) 2415 per units CII index for the year 2010-11 137 CII index for the year 2019-20 272 Sale consideration of gold ETF ₹724500 (2415*300) Cost of acquisition (17th October 2008) ₹294900 (300*983) Indexed cost of gold ETF ₹585495 (294900*272/137) Long term capital gains with indexation benefits ₹139005 (724500-585495) Long term capital gains tax (@20.6) ₹28635 Post-tax consideration price of sold units ₹695865 (724500-28635) Rate of return (CAGR) = 10.79% Alternatively XIRR = 17-10-10 (-294900) 69

02-04-19 (+695865) XIRR 10.67% 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) (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 70

(Solution Given Below) ₹825000 PPF balance as on 31.03.2017 – Mahesh ₹315000 PPF balance as on 31.03.2017 – Neelam 01.04.2021 Due maturity date 7.75% PPF rate of return 4 years Total installment till due maturity (April’ 19, 20, 21, 22) Clients account; ₹40000 Contribution in April 2019 ₹932038 Balance as on 31.03.2020 ₹48000 Contribution in April 2020 ₹1055991 Balance as on 31.03.21 ₹58000 Contribution in April 2021 ₹1200325 Balance as on 31.03.2022 ₹70000 Contribution in April 2022 ₹1368775 Balance as on 31.03.2023 Spouse account; Contribution in April 2019 ₹20000 Balance as on 31.03.2020 ₹360963 Contribution in April 2020 ₹24000 Balance as on 31.03.21 ₹414798 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% 71

(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) 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 72

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 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 2019 if not continued further ₹2089000 Total amount to be paid in April 2019 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 is 8.37% 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. 73

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) PV today ₹8035519 (9982500/1.07^3) Total fund required (6098435+8035519) ₹14131954 Available fund ₹12, 17, 000 Additional required ₹12314954 Q15 B) ₹598222 (14131954-1217000) (Solution given below) Let out house (50%) MV 120000 GAV FRV 150000 (-) Municipal taxes NAV SR 180000 (-) 24 (a) 30% of NAV Actual rent 96000 (b) Interest 150000 Net Income 6000 Business Income Less a) municipal tax 144000 b) Land revenue 43200 c) Insurance paid 105289 (-4489) ₹750000 6000 8000 8000 74

d) Depreciation 20000 e) Interest 105289 Net Business Income ₹602711 Total income ₹598222 (602711-4489) Additional questions 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 2. B) 23.97% 100% value of loan is ₹250000 75

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 Case Study – E (Reference Date: 1st April, 2019) 76

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 2019: 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 28-03-2016; continued monthly SIP of ₹ 5,000 for a year from 01-01-2017; 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- 2018 and ₹ 2.5 per unit reinvested at NAV ₹11.269 on 05-03-2019) Equity Linked saving scheme (ELSS) Invested in 5,000.000 units at price of ₹ 11.62 per unit on 2nd Feb, 2013; further invested ₹1,50,000 at price of ₹ 13.47 per unit on 18th Jan, 2016; open-ended scheme; Growth option. NAV on 31st March, 2019: ₹ 22.893 per unit. Gold Jewelry and coins 100 grams; received as gift on the occasion of marriage in the financial year 2016-2017; Current Price of Standard Gold (22K) ₹ 2,771 per gram. Car ₹ 3,00,000 (depreciated value) 77

PPF Account: ₹ 3,77,440; the account was opened on 8th July, Balance in Savings Bank Account 2014 Balance in Fixed Deposit ₹ 1,50,000 Employees’ Provident Fund House Property ₹ 3,00,000 invested with the bank on 1st August 2017 for 24 months with cumulative option. The Term Insurance Plan interest is compounded quarterly at the rate of 9% p.a. ₹ 8,27,325 (Cumulative balance); Situated at Aurangabad, inherited on 1st December 2018 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 2019 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. 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 Sanjay’s expected life : 80 years Sherlyn’s expected life : 80 years Assumptions regarding pre-tax returns on various asset classes (1-3 years): 78

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: 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 79

Case Study - E (Sanjay) (Reference Date: - 1st April 2019) (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% (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 80

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. 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? 81

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 82

(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 2018-19. 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% 83

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 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 84

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 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 Set = Begin 85

N = 10 I = 1.42…. (RRR) PV =? (-47292962) PMT = 5035359 FV = 0 P/Y=1, C/Y=1 PV at age of 62 from 62 to 70 ₹27524934 (47292962/1.07^8) Expenses at age 70 ₹5035359 Expenses at age 80 ₹8601121 (363126*1.055^10) 70% of such Expenses ₹6020785 (8601121*70%) PV at 80 from 80 to 83 ₹17810328 Set = Begin N=3 I = 1.42 (RRR) PV =? (17810328) PMT = 6020785 FV = 0 P/Y=1, C/Y=1 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 PPF current balance 86

Yearly saving ₹30000 Maturity amount ₹1388846 Future value after 3 five years blocks ₹5115935 Future value at retirement ₹7344586 (5115935*1.075^5) Total corpus on retirement ₹14845350 (7500764 + 7344586) Required corpus ₹57348411 ( previous question) Total Savings (percentage) 25.89% Shortfall ₹42503061 Additional monthly SIP required = 15077 Set = begin N = 31*12 I = 11 PV = 0 PMT =?(-15043) FV= 42503061 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) 87

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 Set = begin N = 52 ₹50 lakh I = RRR (1.4084….) ₹18574409 PV=? (26789909-3215500-5000000) PMT= 720000 FV= 0 ₹25 lakh P/y=1, C/y=1 8% Current insurance cover 19 Additional requirement ₹9990049 (2500000*1.08^18) Q12 C) ₹16753 Debt (Solution given below) Set = begin Current cost of higher education N = 16*12 Cost of escalation I = 7.5% Required at the age of Escalated value at the age of 19 Assume ₹100 is invested according to ratio Equity Set =begin N = 16*12 I = 11% 88

PV = 0 PV= 0 PMT= -50 PMT = -50 FV =? (24892) FV =? (18147) P/y=12, C/y=1 P/y=12, C/y=1 40% equity transferred to debt fund Set = begin (equity balance after 1 year) N = 1*12 I = 11% PMT = -50 PV = -14935 (60% of 24892) FV =? (17213) P/y=12, C/y=1 Set = begin (debt balance after 1 year) N = 12 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 89

Total corpus = ₹53213 (43025 + 10188) Monthly SIP is ₹18774 (9990049*100/53213) Q13 D) ₹63544 (Solution given below) ₹12000000 Current value of desired house = ₹13188811 Expected value of house after 18 Months (12000000*(1+6.5%) ^1.5) ₹10551049 (80% of 13188811) Loan amount to be availed 25 years Tenure of the loan 9% Rate of interest ₹ 88544 EMI on housing loan ₹25000 Current rental outgo ₹63544 (88544-25000) EMI in excess of current house rent Q14 D) ₹ 260710 660000 Income under the head salaries Basic salary 0 H.R.A Received 198000 15000 Less exempt 198000 960000 Medical reimbursement ₹1635000 Executive allowance -50000 Income from salary 1585000 Standard Deduction Gross total income from salary nil (exempt up to ₹10000 U/S 80 TTA) Income from other sources ₹14815 Saving account interest 14815 ₹1599815 Interest on fixed deposit Income from other sources 20000 Gross total income 10000 Less deduction u/s 80 (c) 79200 PPF Premium of term insurance EPF contribution 90

Deduction u/s 80 (d)(Medical policy) 30000 Total income ₹1460615 Round off ₹1460620 Tax on total income ₹250686 0-250000 0% 0 250001-500000 5% 12500 500001-1000000 20% 100000 More than 10 Lacs 30% 138186 Add (cess)@4% ₹10027 Tax Payable ₹260713 Round off ₹260710 Working note H.R.A calculation ₹198000 Least of the following will be exempt ₹234000 (300000-66000) 1. Actual received ₹330000 2. Rent paid – 10 % of salary 3. 50 % of the salary Taxable = actual received – exempt ₹0 = ₹198000 –₹198000 Q15 C) 14.80% Amount (Solution given below) -58100 (5000*11.62) Dates -150000 (150000/13.47 = 11135.85746 units) 2-Feb-13 369398((5000+11135.85746)*21.06)) 18-Jan-16 14.80% 1-Apr-19 XIRR Additional Questions 1. A) CASH I=0 CASH D EXE 1= -2500000x0.40 2= 230000x0.40 91

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 92

Case Study Sample - 1 (Roger) (Source: FPSB) (Reference Date: 1st April, 2019) Roger, aged 29 years, is working with a multinational company since December 2012. 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 FY 2019-20): 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, 2019) 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) Gold ornaments4 : ₹ 4.50 lakh Equity Mutual Fund schemes5 : ₹ 7.85 lakh ________ 1 Opened in December, 2013 in the name of Roger 2 Purchased on 25th October, 2015; 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. 93

3 Purchased when Mark was 2 year old; term of 15 years; annual premium ₹ 41,374 4 Gifted on marriage in November 2013 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 2017. 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. Life Parameters: Roger’s Expected Life : 75 years Angela’s Expected Life : 80 years _________________ 6 The Demat account in which Roger and Angela are respectively first and second holders was started in 2015 7 Three deposits; ₹ 2 lakh made on 1st July 2016 for 3 years at 9.75% p.a., ₹ 1 lakh made on 1st July 2017 for 2 years at rate 9.25% p.a. and ₹ 1 Lakh made on 1st July 2018 for 1 year and 1 day at 8.75% p.a.(interest is compounded quarterly and is cumulated to be received on respective maturities.) 94

8 Home loan of ₹ 24 lakh for a 15-year term taken in April, 2013 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, 2017 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 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 95

Questions 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 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 96

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 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 97

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 2020 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] 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 98

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 2018 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 2018. 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 2020-21? [3 marks] A) ₹ 12,818 short term capital loss to be set off against capital gains in AY 2020-21 or carried in 8 subsequent years B) ₹ 83,557 short term capital loss to be set off against capital gains in AY 2020-21 only C) ₹ 83,557 short term capital loss to be set off against capital gains in AY 2020-21 or carried in 8 subsequent years D) ₹ 12,818 short term capital loss to be set off against capital gains in AY 2020-21 only 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-2018). Roger wishes to hold SGBs till maturity. Calculate the impact of taxation in the AY 2020-21 in 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 AY2020-21; Capital gains of 1,14,030 on maturity B) ₹ 1,31,556 \"Income from Other Sources\" in AY2020-21; Capital gains on maturity shall be tax- exempt C) ₹ 24,745 \"Income from Other Sources\" in AY2020-21; Capital gains on maturity shall be tax- exempt D) ₹ 29,477 \"Income from Other Sources\" in AY2020-21; Capital gains of 1,37,853 on maturity 99

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 2013) ₹ 2,400,000 EMI considering 10% p.a. interest for first three years ₹25,791 p.m. PMT(10%/12,15*12,-2400000,0,0) Loan outstanding as at end March, 2016 ₹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 ₹23,360 p.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, 2024 (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) Q4 A) They must take Mortgage Redemption Insurance or an equivalent term insurance to cover outstanding loans Q5 D) ₹ 105 lakh (approx.) 40,000 ₹ p.m. (Solution given below) 100 Current household expenses