January 13

The importance of setting Goals – Case Study


Rajesh works with an MNC in Gurgaon. In fact, it’s his first job and he’s been at it for 19 years now. At 43, he looks back at his management trainee days when he used to live in a ‘chamri’ in Pune, with three fellow trainees. He’s come a long way since then both in terms of residence and work profile.

His wife, Anshu, is a home-maker and their son Amitesh is 6 years old.

In 2007, he came across a mutual fund distributor who convinced him to invest in mutual funds. Till then his investments had primarily been in the space of provident fund, fixed deposits and National Savings Certificates with small savings in the Public Provident Fund and life insurance.

Life insurance Rs 10 lakh
Fixed deposits Rs 11 lakh
Provident fund Rs 12 lakh
Public provident fund Rs 1 lakh
National Savings Certificate Rs 4 lakh
Equity mutual funds Rs 8 lakh
Cash at bank Rs 2 lakh

In a span of 3 years, his savings grew substantially, thanks to the systematic investment plans that he was running in his mutual funds. It felt good, but there was no satisfaction and no direction. Rajesh was pleased with the way he was progressing but felt something lacking. Despite what he was doing, there was a feeling that he was getting nowhere… a feeling of cluelessness.

At a ‘chai’ session, on a wintry afternoon, he explained his predicament to his colleague, Ramesh. He vented out that even after putting in hard work for the last so many years and saving money each month, there was no satisfaction. Ramesh understood his sentiment and asked Rajesh to call on his friend, Aryamaan, to take this discussion further.

Aryamaan, a certified financial planner, met Rajesh and asked him a lot of soul searching questions. On clearly understanding his confusion and the current financial position, he asked him to list out his goals. After a lot of thought and discussion between the spouses, they arrived at the following:

Goal Years from now Amount (in today’s terms)
House 4 Rs 15,00,000
Amitesh’s higher education 15 Rs 10,00,000
Amitesh’s marriage 20 Rs 5,00,000
Retirement 15 Rs 6,00,000 p.a.

Aryamaan got down to the number crunching. Taking into account an inflation rate of 8% p.a. and a rate of return of 9% for the goal of “home’ and 12% on all the other long-term goals his computation showed:

Goal Amount required at the time of goal Investment required per month
House Rs 20,64,000 Rs 36,000
Amitesh’s higher education Rs 33,07,000 Rs 6,600
Amitesh’s marriage Rs 24,63,000 Rs 2,500
Retirement Rs 3,31,00,000 Rs 66,250

Suddenly, everything looked so clear. The haze had vanished. His targets stood right in front of him. Now he could see what was possible and what was not.

But this is just the first step. Looking at his surplus income, Aryamaan explained to him that his goal of investing in a house was not possible at the current level of income. He would have to wait for a while.

Next Aryamaan, allocated his assets to his goals. His current allocation was:

Debt 60%
Property 22%
Equity 13%


Aryamaan explained to him that in order to achieve his long term goals he would have to increase his exposure to equity. Since all the computations were based on an inflation rate of 8%, Rajesh would have to beat this in order to get positive rate of returns. And this was only possible by investing in equity related products. With just over 15 years of working years left, he would have to resort to a rather drastic change in asset allocation in the initial few years to increase his rate of return.

Now things were getting clearer and Rajesh was slowly beginning to see some light at the end of the tunnel.

Life insurance

Rajesh’s life insurance as compared to his income was too low. Going by Human Life Value (HLV) calculations, he should have a cover of around Rs 1.75 crore. His current cover of Rs 10 lakh was grossly inadequate. Aryamaan recommended Rajesh take up a term plan immediately. This would cost him about Rs 38,000 per annum.

Health insurance

The only cover that Rajesh had for his family was that which was provided to him, by his company. This was good only till he was employed here. As soon as he switched jobs, he and his family would be left with no health insurance. Aryamaan suggested he start a family health cover so that he was not to any untoward health related exposure, in case he changed employers. This would come to him at a cost of Rs 9,000 for a Rs 5 lakh family floater policy.

Emergency fund

Aryamaan recommended that Rajesh mark his investments in the fixed deposits and the cash at the bank as an ‘Emergency fund’, to be used only in times of emergencies and to be replenished once the emergency has passed and things are back to normal.

Long-term goals

Since all his long term goals are at least 15 years from now, Aryamaan suggested that he continue with his contributions to the PPF, PF at the current rate, but switch all his other surplus to equity-based products (preferably mutual funds).

Lessons to be learnt

1.       Ad hoc investing is of no use

2.       Plan your future methodically and systematically

3.       Set goals for yourself and your family’s financial well-being

4.       Mark your investments against set goals

5.       Regularly track your investments vis-a-vis the goals



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  1. Very simple and lucid case study for layman to understand financial planning. I have been explaining the concept of financial planning to my friends but they just ignore my explaining. I will definitely suggest to read these.

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