Personal Finance And Wealth Management Project Report

1. 1
Personal Finance & Wealth Management Project submitted
towards the partial fulfilment of Post Graduate Diploma in
Management
“FORMING CASELET OF A FAMILY & ANALYSING THE
PERSONAL FINANCIAL PLAN FOR THE SAME.”
.SUBMITTED BY:
Mohammad Ikram
PGDM (Finance) (2010-2012)
Enrollment No: 2010080.
GUIDE:
Dr. Puneet Dublish
Professor-Finance.
NIILM-Centre for Management Studies (CMS) Gr. Noida, Delhi (NCR)

2. 2ACKNOWLEDGEMENT
I wish to express my gratitude to Northern Institute for Integrated Learning
in Management Centre for Management Studies (NIILM-CMS), Greater
Noida Delhi NCR for giving me an opportunity to be a part of it and enhance
my knowledge by granting permission to do this project.
I’m grateful to Puneet sir senior faculty finance NIILM-CMS Greater Noida
for his invaluable guidance and cooperation during the course of the project. He
provided me assistance and support whenever I needed that has been
instrumental in completion of this project.
The learning during the project was immense & invaluable. My work includes
study of “FORMING CASELET OF A FAMILY & ANALYSING THE
PERSONAL FINANCIAL PLAN FOR THE SAME.”
MOHAMMAD IKRAM
2010080
PGDM BATCH-2010-2012

3. 3PREFACE
This is to certify that Mr. Mohammad Ikram a student of Post Graduate
Diploma in Management, NIILM-Centre for Management studies, Greater
Noida has worked under the able guidance and supervision of Mr. Puneet
Dublish, Professor in finance Northern Institute of Integrated Learning In
Management Greater Noida.
This Project report has the requisite standard for the partial fulfilment of the
Post Graduate Diploma in Management. To the best of our knowledge no part
of this report has been reproduced from any other report and the contents are
based on original research.
(Mr.Puneet Dublish) (Mr. Mohammad Ikram)

4. 4TABLE OF CONTENTS
S.NO. PARTICULAR PAGE NO.
ACKNOWLEDGEMENT 2
PREFACE 3
INTRODUCTION TO PERSONAL FINANCE 5-8
WEALTH MANAGEMENT 9-10
PERSONAL FINANCE PLANNING 11-13
1.
TITLE OF CASE – PERSONAL FINANCE CASELET 14
2.
ABOUT THE CASE
A- INCOME INFLOW STATEMENT
B- EXPENSE OUTFLOW STATEMENT
C-PERSONAL BALANCE SHEET
D- FINANCIAL GOAL INTERMEDIATE & LONG TERM GOAL
E- RISK APPETITE & FINANCIAL CONDITION
15-23
3.
CASE SOLVE
VARIOUS RATIOS CALCULATION
24-26
4.
BIBLOGRAPHY 27
5.
QUESTIONNAIRE 28

5. 5INTRODUCTION
PERSONAL FINANCE
“Personal finance is the application of the principles of finance to the
monetary decisions of an individual or family unit. It addresses the ways in
which individuals or families obtain, budget, save, and spend monetary
resources over time, taking into account various financial risks and future life
events. Components of personal finance might include checking and savings
accounts, credit cards and consumer loans, investments in the stock
market, retirement plans, social security benefits, insurance policies,
and income tax management.”
PERSONAL FINANCE PLANNING
A key component of personal finance is financial planning, which is a dynamic
process that requires regular monitoring and revaluation. In general, it has five
steps:
1. ASSESSMENT:
One's personal financial situation can be assessed by compiling
simplified versions of financial balance sheets and income statements. A
personal balance sheet lists the values of personal assets (e.g., car, house,
clothes, stocks, bank account), along with personal liabilities (e.g., credit
card debt, bank loan, mortgage). A personal income statement lists
personal income and expenses.
2. SETTING GOALS:
Two examples are "1. Retire at age 65 with a personal net worth of $1,
000, 000," and, "2. Buy a house in 3 years while paying a monthly
mortgage servicing cost that is no more than 25% of my gross income."
Having multiple goals is common, including a mix of short term and long
term goals. Setting financial goals helps to direct financial planning. Goal
setting is done with an objective to meet certain financial requirements.

6. 63. CREATING A PLAN:
The financial plan details how to accomplish your goals. It could include,
for example, reducing unnecessary expenses, increasing one's
employment income, or investing in the stock market.
4. EXECUTION:
Execution of one's personal financial plan often requires discipline and
perseverance. Many people obtain assistance from professionals such as
accountants, financial planners, investment advisers, and lawyers.
5. MONITORING AND REASSESSMENT:
As time passes, one's personal financial plan must be monitored for
possible adjustments or reassessments.

7. 7The six key areas of personal financial planning, as suggested by the Financial
Planning Standards Board, are:
1. FINANCIAL POSITION:
This area is concerned with understanding the personal resources
available by examining net worth and household cash flow. Net worth is
a person's balance sheet, calculated by adding up all assets under that
person's control, minus all liabilities of the household, at one point in
time. Household cash flow totals up all the expected sources of income
within a year, minus all expected expenses within the same year. From
this analysis, the financial planner can determine to what degree and in
what time the personal goals can be accomplished.
2. ADEQUATE PROTECTION:
The analysis of how to protect a household from unforeseen risks. These
risks can be divided into liability, property, death, disability, health and
long term care. Some of these risks may be self-insurable, while most
will require the purchase of an insurance contract. Determining how
much insurance to get, at the most cost effective terms requires
knowledge of the market for personal insurance. Business owners,
professionals, athletes and entertainers require specialized insurance
professionals to adequately protect themselves. Since insurance also
enjoys some tax benefits, utilizing insurance investment products may be
a critical piece of the overall investment planning.
3. TAX PLANNING:
Typically the income tax is the single largest expense in a household.
Managing taxes is not a question of if you will pay taxes, but when and
how much. Government gives many incentives in the form of tax
deductions and credits, which can be used to reduce the lifetime tax
burden. Most modern governments use a progressive tax. Typically, as
your income grows, you pay a higher marginal rate of tax. Understanding
how to take advantage of the myriad tax breaks when planning your
personal finances can make a significant impact upon your success.

8. 84.INVESTMENT AND ACCUMULATION GOALS:
Planning how to accumulate enough money to acquire items with a high
price is what most people consider to be financial planning. The major
reasons to accumulate assets are for the following:
1. purchasing a house
2. purchasing a car
3. starting a business
4. paying for education expenses
5. Accumulating money for retirement, to generate a stream of
income to cover lifestyle expenses.
Achieving these goals requires projecting what they will cost, and when
you need to withdraw funds. A major risk to the household in achieving
their accumulation goal is the rate of price increases over time, or
inflation. Using net present value calculators, the financial planner will
suggest a combination of asset earmarking and regular savings to be
invested in a variety of investments. In order to overcome the rate of
inflation, the investment portfolio has to get a higher rate of return, which
typically will subject the portfolio to a number of risks. Managing these
portfolio risks is most often accomplished using asset allocation, which
seeks to diversify investment risk and opportunity. This asset allocation
will prescribe a percentage allocation to be invested in stocks, bonds,
cash and alternative investments. The allocation should also take into
consideration the personal risk profile of every investor, since risk
attitudes vary from person to person.
5.RETIREMENT PLANNING:
Retirement planning is the process of understanding how much it costs
to live at retirement and coming up with a plan to distribute assets to
meet any income shortfall.
6.ESTATE PLANNING:
Involves planning for the disposition of your asset when you die.
Typically, there is a tax due to the state or federal government at your
death. Avoiding these taxes means that more of your assets will be
distributed to your heirs. You can leave your assets to family, friends or
charitable groups.

9. 9WEATH MANAGEMENT
Wealth management is an investment advisory discipline that
incorporates financial planning, investment portfolio management and a
number of aggregated financial services.
High Net worth Individuals (HNWIs), small business owners and
families who desire the assistance of a credentialed financial advisory
specialist call upon wealth managers to coordinate retail banking, estate
planning, legal resources, tax professionals and investment management.
Wealth managers can be an independent Certified Financial
Planner, MBAs, Chartered Strategic Wealth Professional, CFA Charter
holders or any credentialed professional money manager who works to
enhance the income, growth and tax favoured treatment of long-term
investors.
Wealth management is often referred to as a high-level form of private
banking for the especially affluent. One must already have accumulated a
significant amount of wealth for wealth management strategies to be
effective.
Private wealth management (PWM) is the term generally used to describe
highly customized and sophisticated investment management and financial
planning services delivered to high net worth investors. Generally, this includes
advice on the use of trusts and other estate planning, vehicles, business
succession or stock option planning, and the use of hedging derivatives for large
blocks of stock.
Traditionally, the wealthiest retail clients of investment firms demanded a
greater level of service, product offering and sales personnel than were received
by the average clients. With an increase in the number of affluent investors in
recent years, there has been an increasing demand for sophisticated financial
solutions and expertise throughout the world.
The CFA Institute curriculum on "Private Wealth Management" indicates that
there are two primary factors that distinguish the issues facing individual
investors from those of institutions.

10. 10 Time horizons are different. Individuals face a finite life as compared
to the potentially infinite life of institutions. This fact requires
strategies for transferring assets at the end of an individual’s life.
These transfers are subject to laws and regulations that vary from
locality to locality and therefore the strategies available to address this
situation vary.
 Individuals are more likely to face a variety of taxes on investment
returns that vary from locality to locality. Portfolio management
techniques that provide individuals with after tax returns that meet
their objectives are necessarily going to be specific to these tax
structures.

11. 11WHAT IS PERSONAL FINANCIAL PLANNING?
Personal Financial planning is about setting goals, understanding what financial
resources you have and will get in the future, and making a plan to properly use
the resources to meet your goals. A key element of the planning also involves
understanding how the outside financial world impacts you. These include
inflation, interest rates, returns you get on your financial assets and the financial
assets you can invest your savings in.

12. 12To make an effective financial plan, you will need the following at a minimum.
1. A list of goals you want to achieve. Be clear of the date you want it to be met on
and the value of the goal. Some examples are:
A house valued today at Rs. 30 lacs by the year 2020
An education fund for my daughter worth Rs. 5 lacs by the year 2022
For my retirement at age 55 years, a monthly pension of Rs. 50,000 at today's
value.
2. A list of your existing financial assets. Some examples are:
Savings in bank account of Rs. 75,000
Provident fund balance of Rs. 1.1 lacs
Equity shares worth Rs. 40,000
3. A list of loans that you have taken.
4. An approximate understanding of how your incomes and expenses will change
in the future. No one can accurately predict this, but it is important to at least
make an attempt to project this. It will help to be careful in not over estimating
your income or thinking that your expenses will be low. Have a realistic opinion
here.
5. Try to understand what inflation, interest rates and returns on assets mean. You
don't need to know how to calculate it as today you have access to the internet
where you can find tools to calculate them for you or provide you with the
required information.
6. An understanding of your risk appetite is essential to choose the right financial
products. This will depend on
How comfortable you are financially?
Do you have dependents?
Can you withstand large changes in the value of your investments?
What sort of incomes you will have in the future?
Do you have the access to buy and sell required financial products?
You don't need to take any additional risks if you are meeting your goals. Try to
find the minimum risk you need to take for meeting your goals. On the other
hand don't take a risk free approach. You should have a right mix of different
financial investments to help you find the right balance.

13. 137. Once you determine the type of financial products that you are comfortable
with, it is essential that you check periodically if the values of your financial
products are following your risk needs. Buy and sell small portions of your
financial assets once every 12 months so that the mix is as per your risk
preference.
8. Finally, don't make your plan and forget about it. Remember, there are external
factors like inflation and interest rates that can change and impact your plan. A
review once in 3 months is recommended. Review need not mean a complete
planning. You can check if the plan you have is on track to help you meet your
goals.
A good financial plan will help you make you meet your goals and sleep
peacefully at night.

14. 14[1]. Title of case
PERSONAL FINANCIAL PLAN CASELET
Following below is a caselet of the personal financial plan as on 31st
march
2011 of a family comprises of three people in whom there is one earning
member Mr. khan and the other dependents. I.e. Mrs. Khan and their 15 years
old child name Salman. The earning member is working from the past 15 years
and presently he is of 36 years.
Mr. Khan is working in a Dubai based Bank Of Bahrain & Kuwait and earning
٨٨,٤ ٨٨ .٦٤ ‫س.ر‬ [88,458.64 Saudi Riyal (SAR)] Per Annum which is equal to
1,200,000.00 P.A Indian National Rupee (INR) [1INR=0.0737155 SAR
SAR=13.5657 INR] . Whereas Mrs. Khan is also working in Gulf Lubricants
with gross salary of ٤٤,٢٣ ٠ ٠ ٨ ‫س.ر‬ [44,230.08 SAR] Per Annum which is
equal to Rs. 6, 00,000 per annum INR. They have various sorts of expenses.
They purchased a flat from their own money & have insurance for the same of
Rs. 30,000 annually. They owe a car for which they pay Rs. 10,000 as
insurance annually. The value of their car at present is Rs. 8 lakhs .They have
one more car whose present value is Rs. 3 lakh for which they pay insurance of
Rs. 20,000 annually. They have purchased a plot of investment for Rs. 2 lakhs.
Mr. Khan invested in Capital market worth Rs. 1 lakh of various company
shares. They got an annual dividend of Rs. 2,000 from shares. And rent from
their plot Rs. 50,000 annually. They have taken an educational loan for their
child which is secured over their assets of Rs. 4 lakhs for their child from a bank
for which they pay interest of Rs. 1,000 per month. They have other unsecured
loan of Rs. 2 lakhs. The current assets of the family such as cash in hand are Rs.
1 lakhs and Rs. 5 lakhs as a bank account in their savings. Other fixed assets
include furniture of Rs. 3 lakhs and jewellery of Rs. 3 lakhs. The furniture
which they have purchased have not fully paid amount for which Rs. 50,000
are still remaining as outstanding. Mr. Khan is a member of a city club of which
his expense comes out to be Rs. 15,000 per annum. And the present value of
their house comes out to be Rs. 30 lakhs and their total expenses come out to be
Rs. 40,000 per month which includes their petrol expenses, electricity expense,
water, car expense, and other household expense. And other miscellaneous
expenses came out to be Rs. 3 lakhs P.a.Mr. Khan has to pay tax also as a liable
citizen of the country. The tax will be calculated according to the tax slab
introduced by the govt.

15. 15[2]. ABOUT THE CASE
The income and expenses of the family can better be determined with the help
of a cash flow statement, also called a personal income and expenditure
statement. It summarizes the cash receipts and payments for a given period such
as a month etc. Their income & expenses are mentioned as below. The data on
the income and spending patterns are-
PERSONAL INCOME STATEMENT
INCOME OF MR.KHAN & MRS. KHAN
[A]. INCOME (CASH INFLOWS) AS ON 31ST MARCH 2011.
PARTICULARS IN INR( )
Basic salary of Mr. Khan 12,00,000
Basic salary of Mrs. Khan 6,00,000
Dividend on shares 2,000
Rent 50,000
TOTAL INCOME 1 8,52,000

16. 16EXPENSES OF MR.KHAN & MRS. KHAN
[B]. EXPENSES (CASH OUTFLOWS) AS ON 31ST MARCH 2011.
PARTICULARS IN INR ( )
Insurance 60,000*
Interest on loan 12,000**
Membership fees 15,000
Other household expenses 4,80,000
Miscellaneous 3,00,000
TOTAL EXPENSES 8,67,000
NET INCOME 9,85,000***
(Income - expense)
(-) LESS TAX @ 30% 2, 95,500
NET INCOME AFTER TAX 6, 89,500

17. 17WORKINGS:-
*INSURANCE PER ANNUM CHARGED -
On 1st
car 10,000
On 2nd
car 20,000
On flat (+) 30,000
60,000 INR
**INTEREST ON LOAN PER ANNUM CHARGED –
On Salman’s Education loan 1,000X 12 =12,000 INR
*** NET INCOME=TOTAL INCOME – TOTAL EXPENSE
TOTAL INCOME 18, 52,000
TOTAL EXPENSES (-) 8, 67,000
9, 85,000 INR

18. 18[C]. PERSONAL BALANCE SHEET
BALANCE SHEET OF KHAN
AS ON 31ST MARCH 2011
Their assets and liabilities both short term & long term are mentioned
as below-
ASSETS IN INR
IN INR
CURRENT ASSET
Cash in hand 1,00,000
Bank account 5,00,000
Securities 1,00,000
TOTAL OF
CURRENT ASSETS 7,00,000
FIXED ASSETS
Car ( 1st
) 8,00,000
Car ( 2nd
) 3,00,000
House 30,00,000
Furniture 3,00,000
Jewellery 3,00,000
TOTAL OF
FIXED ASSETS 47,00,000
TOTAL ASSETS 54,00,000

19. 19
LIABILITY IN INR IN INR
SHORT & LONG TERM
LIABILITITY
Educational loan 4,00,000
Unsecured loan 2,00,000
TOTAL OF SHORT & LONG
TERM LIABILITY 6,00,000
CURRENT LIABILITY
Furniture outstanding 50,000 50,000
TOTAL OF
CURRENT
LIABILITY 50,000
TOTAL LIABILITY 6,50,000

20. 20[D]. INTERMEDIATE AND LONG-TERM GOALS OF
MR.KHAN & MRS. KHAN
Financial planning is done to achieve the future financial goals. The factors that
have to be considered by an investor while developing the personal financial
goals are:
Timing of goals - Setting appropriate time for achieving financial goals is
very essential because it helps to monitor the current expenses and limits
the unwanted usage of money.
Goal frequency - Identifying the frequency of occurrence of goals is very
important as it helps to plan for it in advance. This prevents the changes
that can alter the investor’s plan. For example goals like money for gifts,
vacations occur more frequently whereas goals like children’s education,
marriage, or house occur less frequently.
Goals for different needs - Identifying goals for different financial needs
like the consumable product goals and the durable product goals is
essential. The consumable product goals occur on periodic basis such as
food, clothing, and entertainment. The durable product goals may be
expensive items such as car, appliances and so on which do not occur that
frequently.
Goal setting guidelines - The planned financial goals should follow
certain guidelines such as:-Financial goals should always be realistic.
Financial goals have to be stated in specific measurable terms.
Financial goals should have time lines.

21. 21FOLLOWING STEPS CAN BE APPLIED FOR SUCCESSFUL ACHIEVEMENT
OF FINANCIAL GOALS:
Identify goals.
Classify goals.
Set deadlines.
Monitor progress.
After listing all the goals, classify and prioritise them. The classification can be
done as short-term goals, intermediate goals, and long-term goals.
 Short-term goals - Short-term goals are the goals that are to be achieved
in a year or two such as saving for vacation or paying off small debts.
Mr & Mr. Khan made a provision for a European
vacation.
 A trip to remember before the kids start of on their higher education.
 Can be Met Goal is to be achieved on 01-May-2014. It is planned for
Family.
 Current Value is Rs. 400,000, a Lump sum.
 Intermediate goals - Intermediate goals are the goals that have a time
frame of two to five years such as buying a bike or a car, paying off debts
like credit cards, getting a certification and so on.
 Long-term goals - Long-term goals are the goals that have a time frame
of more than five years. They involve financial plans such as money for
children’s education, retirement savings, purchase of home, children’s
marriage and so on.

22. 22
A fund for Mr. khan’s Retirement Days
 Generate interest income out of this fund and enjoy retired life
 Possible, plan again
 Goal is to be achieved on 31-Oct-2030. It is planned for self.
 Current Value is Rs. 10,000,000, a Lump sum amount.

23. 23[E]. RISK APPETITE AND FINANCIAL CONDITION
After knowing about their balance sheet and about their income statement we
can say that the family financial condition is very sound.
As their total income is more than 18 lakhs [12 lakhs + 6 lakhs] and after
deducting all the expenses it is again more than 9 lakhs which is quite very
good for a family where there are two earning members with a child or we can
say that there are 3 members in a family total.
 As part of their risk appetite as we can say that Mr. Khan has interest in
the share market and he had purchased the equity of more than Rs. 1 lakh.
 So accordingly we can say that Mr. khan is less risk averse and more
Risk taker as dealing in equities is riskier for a person because dividend is
unknown moreover share market is less predictable.

24. 24[3]. SOLVE THE CASE
(i). Calculate their net worth.
Net worth is the difference between everything of value that a person owns and
all the debts that that person owes. In short, a person's net worth is the value of
all assets minus the value of all liabilities. If the person has more assets than
liabilities, then that person has a positive net-worth. If the person has more
liabilities than assets, then that person has a negative net worth.
NET WORTH OF KHAN ’S FAMILY
 TOTAL NET WORTH = TOTAL ASSETS – TOTAL
LIABILITIES
= 54, 00,000 – 6, 50,000.
= 47, 50,000. (POSITIVE NET WORTH)
(ii). liquidity ratio.
LIQUID ASSETS/CURRENT LIABILITY
6, 00,000 / 50,000 = 12
(iii). Housing payment ratio.
HOUSING COST/GROSS MONTHLY INCOME

25. 252, 50,000/1, 50,000= 1.67
(iv). solvency ratio.
o CURRENT RATIO =
 CURRENT ASSETS/ CURRENT LIABILITIES
= 7, 00,000 / 50,000 = 14
o CURRENT LIABILITIES TO NET WORTH RATIO=
 C.L. / NET WORTH
= 50,000 / 47, 50,000 = 0.011
o FIXED ASSETS TO NET WORTH RATIO
FIXED ASSETS/ NET WORTH
= 47, 00,000 / 47, 50,000 = 0.989.
o TOTAL LIABILITIES TO NET WORTH RATIO
 TOTAL LIABILITIES / NET WORTH
= 6, 50,000 / 47, 50,000 = 0.137.

26. 26(v). savings ratio.
o CURRENT SAVING RATE =
1 – CURRENT SPENDING / CURRENT INCOME
= 1 – 8, 67,000 / 18, 52,000
= 1 - 0.468 = 0.532.
(VI). DEBT TO INCOME RATIO
DEBT / NET INCOME
= 6, 00,000 / 6, 89,500
= 0.870

27. 27BIBLIOGRAPHY
Personal finance by Reynolds.
The complete idiot’s guide to retiring early by Dee Lee, CFP, Jim
Flewlling.
Personal finance by Kapoor, Dlabay Hughes (TMH).
Financial planning journal- FPSB.
Course Manual.

28. 28Questionnaire
PERSONAL FINANCE PROJECT
NOTE: This mail is addressed to those students who have opted for
Personal Finance & Wealth Management. Those who haven't opted
may ignore this mail.
Dear Students
As announced in the class for internal assessment in PF&WM you
will develop a situation in the form of a caselet and also solve that
case. The relevant information and guidelines for the above are given
below:
1. Title of the Case = Personal Financial Plan
2. About the Case = Think of a family in which one or two are
earning members with mentioned income, expenses, assets and
liabilities (Short-term and Long-term). Write about their intermediate
and long-term goals. Analyze their financial condition and risk
appetite.
3. Solve the Case = Calculate their net worth, liquidity ratio, housing
payment ratio, solvency ratio, savings ratio, debt to income ratio.
Finally draft a financial plan based on the analysis of the financial
condition so as to enable your client to achieve specified goals.
The case project will be evaluated out of 50 marks. There will be no
other criteria for internal assessment. This project is compulsory for
all students (including ones who are not attending classes due to their
early joining) and hence non submission will result in zero marks.
The project should be send in soft copy and mailed at
pdublish@niilm.com latest by March 31, 2012.
With best wishes
Dr.Puneet Dublish
Professor-Finance

29. 29