A real life financial planning case study

From the time i have started the blog, several readers have interacted with me with a variety of requests. Some want me to review their existing portfolio, others want me to suggest what MF they should be buying and a few want me to advise them on whether their overall financial plan is on track. While I normally respond to all requests, it is the last one which is of more interest to me as I get to learn a lot from it. Last week, I got to review a financial plan which I wanted to make into a case study as it will be of use to all readers of my blog.

To begin with here was the background information that was supplied to me by Ravi :-

  • Ravi is 33 and works in a Financial company in Bangalore, where he stays with his wife and 3 year old son. He was in Pune earlier, where he owns an apartment. His current apartment in Bangalore is rented.
  • Rental from Pune is 18000 and he pays a similar rent in Bangalore. His household expenditure including the schooling of his child is about 25000 per month.
  • His financial assets are as follows:
    • PF / PPF of 6 lacs in all.
    • 3 lacs FD and 3 lacs of RD.
    • 30 lacs worth of stock portfolio.
  • His home loan for the Pune apartment has been paid off aggressively and has only 3 lacs to go now.
  • He has an insurance policy from LIC of 12 lacs.
  • Current cash flow is 1 lac from salary and 18000 from Pune apartment rental.
  • Goals for Ravi are mainly son’s higher education and own retirement.

My observations on what Ravi has done well and what he has not were as follows:-

  • His insurance is clearly inadequate and must be at least 1 crore preferably more.
  • Aggressive pre-payment of home loan has been a good achievement.
  • It is great that he has built up a substantial stock portfolio in limited time.
  • Not having any MF investments is not a good idea, he needs to have a MF portfolio apart from stocks.

Based on these I suggested the following action plan to Ravi:-

  • Take a term plan of 1 crore immediately and bump it up to 2 crores when he reaches 40 years.
  • Start SIP with MF and put 20000 Rs per month into 4 funds as per my MF portfolio structure. This will be enough to take care of his son’s graduation needs that will be there in 15 years. Ravi can increase this SIP amount later on.
  • He is looking to buy a house in Bangalore. Ideally, he should do it by selling the Pune apartment. If he does not want to do so then he has to make a down payment of at least 20 % of the Bangalore apartment price. Also his loan EMI along with the rent he gets from Pune apartment should not exceed 50000 Rs per month. In other words EMI should not be more than 32000 Rs.
  • He needs to maximize his PF and PPF for the debt portfolio. No other debt products are needed.
  • He should continue to put all surplus money in his stock portfolio, where he is already doing very well. Over the period of the next 25 years this can easily grow to 5 crores and more.
  • Without any real need to do the calculations, it is easy to see that Ravi will be able to retire comfortably in 25 years with his PF/PPF account amount and stock portfolio value.
  • Even if he wants to do something different earlier to retirement, he will have the option of selling off his Pune apartment to fund the same.

I hope this has been an useful read for most people and would have helped them relate to their own financial situation. If any of you want me to take a look at your financial plan, reach out to me through Facebook and I will interact with you.

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13 thoughts on “A real life financial planning case study

  1. Someone who has already saved over a crore by the age of 33 is doing well financially and need not waste on a term plan, which would cost around Rs.60K per annum plus he can also skip SIP. As a staff of a finance company, he would have adequate financial sense to do equities directly for the long term. He should use the money saved on (Term Plan + SIP) for the EMI of a bangalore flat. My 2 cents.

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  2. Rajeshekhar, I am following your blog since inception and I appreciate your efforts to educate users.
    Thanks.

    However, I agree with Swapnil without extra source of income or onsite overseas assignment, it looks impossible to achieve the portfolio.

    Here we are interested to know what Ravi did right rather than knowing his financial details. 🙂
    Because now a days with home loan, it looks impossible to achieve such strong portfolio (without any overseas assignment).

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    • Abhijit, it all depends on how we do things. Ravi has had bulk of his stock purchases in bad markets so 30 lacs has a lot of gains in it. People doing SIP will not understand how this works. Also, he has worked for 12 years and his expenses are low, which has enabled him to pay off his loan faster.

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      • I see. 12 year old stock folio means, he might have taken leverage of 2008 stock downturn. May be this helped to grow the stock folio substantially.
        Thanks for explanation.

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