Creating a Financial Plan – A real life case study

Of late I have been approached by a few readers with the request of creating a financial plan for them. I believe that the resources available in this blog should be adequate for making a plan for most people. However, the current plan that was made for a person just this week will probably be of interest to many readers. Note that, only the name of the person has been changed, everything else is his real life situation.


Ajay Narang is a software professional working in Bangalore. He is 31 years old and has recently got married. Ajay has only invested in some FD and Insurance schemes as of now. He does not have any investments in equity and his debt investments are limited to PF and a couple of bonds. Ajay now realizes that with growing family size and responsibility, he needs to focus on his investments for funding the goals he will have in the next 2-3 decades. He wants to get a financial plan done, in order to get a handle on the investments needed for achieving his goals.

Life Events for Ajay:

In a discussion with Ajay, the following life events were charted out:-

  • Birth of first child in 2018.
  • Purchase of his first car in 2020.
  • Birth of second child in 2021.
  • Current home loan to be over by 2034.
  • College admission for first child in 2036.
  • College admission for second child in 2039.
  • Retirement from regular work in 2040.
  • Purchase of second house in 2040.
  • Marriage of first child in 2043.
  • Marriage of second child in 2046.
  • Ajay expects to live till 2065.

Financial Goals for Ajay:

Based on his life events the following financial goals have been worked out for Ajay:-

  • College education for the first child is assumed to be 10 lacs at current prices. Assuming an educational inflation rate of 10 %, goal amount needed in 2036 will be 74 lacs.
  • College education for the second child is assumed to be 10 lacs at current prices. Assuming an educational inflation rate of 10 %, goal amount needed in 2039 will be 98.5 lacs.
  • Current annual expenses are assumed to be 4.2 lacs for Ajay. With an inflation rate of 7 %, his expenses in the first year of retirement (2041) will be 22.8 lacs. For a 25 year corpus with zero real rate of return, the value comes to 5.7 crores.
  • The second home Ajay is looking at will cost about 50 lacs today. Assuming an inflation rate of 7 %, the cost in 2040 will be 2.71 crores.
  • Marriage expenses of first child are expected to be 10 lacs at current prices. Taking inflation at 7 %, this will amount to 66.5 lacs in 2043.
  • Marriage expenses of second child are expected to be 10 lacs at current prices. Taking inflation at 7 %, this will amount to 81.5 lacs in 2046.

We now have a clear picture of the financial commitments that Ajay has over the years. With these inputs it will now be possible to look at a possible investment plan for him.

Before getting into that Ajay should take term insurance of at least 1 crore as his current insurance cover of 7 lacs is clearly not adequate. His Jeevan Anand policy can be made paid up as that money can be used for a term plan with some surplus for investment.

The investment plan is being done from scratch as the current investments are not much.

Meeting the Goals:

Based on the substantial goal amounts that we are talking about for Ajay, it will be important to note that Equity based investment needs to be the main route to meeting the goals. At this point of time, and for the next 19 years the home loan EMI will form a substantial part of his expenses. Also, as his family grows and he has children, his expenses will also grow in a commensurate manner.

Based on the above, a better approach will be to see how much he can invest logically and then look into which of his goals can be met and how. We will be making the following assumptions:-

  1. Ajay’s salary will increase by 8 % annually, so in essence his take home salary will double every 9 years. When he retires he will be getting about 7.5 lacs a month. This is not unrealistic but he may have to change his job a couple of times and re-skill himself along the way.
  2. From an investment perspective, we will enhance the investment amount per month by 50 %, every 5 years. This is possible as with increasing income, the proportion of investible surplus normally keeps increasing.
  3. In the initial period we will be investing only in equity and only through Mutual funds. After 5 years there will also be investment in debt through PPF. The PF will continue as usual and will be one of the key components of the retirement corpus.
  4. Right now Ajay has about 35000 to invest every month. Plotting the investible surplus by the logic outlined above we will get the following investment amounts for each 5 year block:-
    1. 2016 to 2020 – 35000 per month only in equity
    2. 2021 to 2025 – 52500 per month , 12500 in PPF and rest in equity
    3. 2026 to 2030 – 70000 per month, 25000 in PPF and rest in equity
    4. 2031 to 2035 – 105000 per month, 25000 in PPF and rest in equity
    5. 2036 to 2040 – 140000 per month, 25000 in PPF and rest in equity

How will the equity investments in SIP grow over a period of time. For the sake of being conservative we will take the long term XIRR for equity MF to be 10 %. With this assumption the following growth is likely to happen over the time period from now till Ajay retires in 2040.

  • The first lot of SIP of 35000 for 25 years will grow to 4.68 crores
  • The next lot of SIP of 5000 for 20 years will grow to 38 lacs
  • The next lot of SIP of 5000 for 15 years will grow to 21 lacs
  • The next lot of SIP of 35000 for 10 years will grow to 72 lacs
  • The final lot of SIP of 35000 for 5 years will grow to 27 lacs

So the total corpus at the end of 2040, in the retirement year for Ajay will be 6.26 crores from this route. Each of the PPF accounts will generate 46 lacs in 15 years. As we plan to continue the first for 20 years the total amount from these will be more than 1 crore.

Finally the PF amount will get to 2.66 crores with it being continued for the next 25 years.

With these figures in place, let us now look at how Ajay is placed, based on his overall goals, the funding required for them and how these can be met. While a method of deployment is suggested here, it is important to understand that the market levels will fluctuate in a long period such as these. Obvioisly, it does not make sense to redeem equity in a poor market. So if in the year of a goal, the market level corrects significantly, look to meet the goal from Debt instruments – in this particular case a withdrawal from PPF will be the appropriate choice.

Note that the total future cost of all the goals put together is 11.61 crores. As against this the total investment after growth in 2040 is equal to about 10 crores. However, this will not be a problem as we have been conservative in our assumptions and part of the corpus will continue to grow beyond 2040.

Deployment for meeting goals:

In general all goals will be met by redemption of equity MF unless there is a particularly poor year in the market, where an withdrawal from PPF or even PF may be considered.

MF Portfolio:

Dilip will need to create a portfolio of 4 mutual funds. The types and suggested funds are given below:-

  1. Large cap MF such as ICICI Focused Blue Chip / Franklin Blue Chip / SBI Blue Chip
  2. Multi cap MF such as ICICI Value Discovery / Franklin Prima Plus
  3. Mid cap MF such as HDFC Mid cap opportunities / ICICI Mid cap
  4. Small cap MF such as DSP BR Micro cap fund / Franklin Smaller companies

For the initial 35000 Rs, start with 10000 Rs in the first two and 7500 Rs in the others.

Stock Portfolio:

Ajay will have enough funds after about 5-10 years to start building a stock portfolio. Though this is not strictly required as part of his financial plan, it will serve as a hedge for any unforeseen events in his retirement. I have deliberately not put a figure for it as Ajay can experiment with this, based on his interest, and put as much of his surplus available to this as he wants to do.

I hope most readers would have found this useful and will now be able to assess how their financial planner is helping them create an appropriate plan. Will he happy to hear from you through comments and Facebook Messenger.


11 thoughts on “Creating a Financial Plan – A real life case study

  1. This is very helpful sir. Nicely covered major aspects of financial plan.
    Just 1 suggestion from my end . Rather than increasing sip amounts after every 5 years, One should directly go for sip top up, where one can increase sip amount every year. 5-10% increase in Sip amount per year through sip top up route shall help all.


    • The issue is the amount of money available. In the initial period he will not have such increases possible due to his home loan EMI and other commitments.

      At later date again, lump sum at the beginning of the year is not practically possible. Also, putting a large amount of money one time for equity MF purchase is never a good idea.


  2. This is very informative. But I have few doubts-
    1. After 2034 when home loan will be over shouldn’t he be able to invest more?

    2. School education of children is also not cheap. Admission fee takes a big pie and are monthly/ quarterly affair. Should we consider this? Or it is assumed that wife’s salary will take care of this.


    • School education should be paid from regular income. As his income will increase over a period of time this will not be a problem.
      As far as investment after home loan is over, this is largely factored into the investment plan. However if more money is available then you can always invest in stocks.


  3. sir I have one doubt regarding home loan.should one repay home loan first by investing somewhere and later start investing for other goals.kindly share your thoughts.


  4. Sir, this is very useful. But. One small request that most of the Indian families apart from Tier 1 cities are in the average of 4- 6 Lakhs per annum. So, we feel that seeing these numbers, we can’t achieve this as our pay is very low. So, for middle class people, can we achieve the targets..Please guide.


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