http://www.outlookmoney.com March 2018 Outlook Money 79
etc. We were able to convince the
family with historical data that
investing in equity is all about
long-term. Furthermore, long-term
actually does not mean a period of
one year, but a range of between
10 years and beyond. We were also
able to educate the family on the
importance of saving regularly and
how a regular investing can reduce
the risk of volatility.
Having clarified the basic
concepts of investing, the family’s
confidence level improved. We
then simplified the goal in financial
terms. For example, if the cost of
higher education for their 11-year-
old daughter is currently `15 lakh
and they expected the cost to
increase by 8 per cent every year,
then after seven years, when their
daughter turns 18, they would need
`25,70,736.40 to fund her education.
Now assuming a 12 per cent return
on their investment, they should
save `19,478.38 per month to be
able to provide for this goal. With all
the listed goals together, the family
would require to save `68,066.61
every month for their respective
tenure to provide for their daughters’
marriage and education.Goals Current Cost No. of Years
to GoalExp Inflation
Rate
Future Exp Cost Exp ROI SIP AmountDaughter 1 Education 15,00,000.00 7 8% `-25,70,736.40 12% `19,478.38
Daughter 2 Education 15,00,000.00 11 8% `-34,97,458.50 12% `12,735.87
Daughter 1 Marriage 30,00,000.00 14 8% `-88,11,580.87 12% `20,190.69
Daughter 2 Marriage 30,00,000.00 18 8% `-1,19,88,058.50 12% `15,661.67
`68,066.61This was comforting for the family
as they were confident of setting
aside this amount every month.
Next, came the retirement corpus.
The family’s current household
expenses were`1 lakh per month.
Assuming the age of retirement to be
60 and an inflation rate of 6 per cent,
this cost would swell to `3,02,559.
So, if life expectancy age was
assumed to be 80, then the family
would need about `45 crore as their
retirement corpus. This sounds like
a big amount, but when we broke
this up into annual and monthly
contributions of `4,54,895.36 and
`35,119.15, respectively, the family
was confident of providing.
Finally, we discussed the risk of
not being around to fund for the
tenure of the goals, in case of a
misfortune befalling the family. We
suggested that they buy a simple
term plan. Thereby, in case of any
contingency, the family would be
able to provide for the financial
losses at least.
The family was elated because
all the concepts were explained
and clarified to them in a simple
and scientific manner. They were
confident of meeting their goals, as
all matrixes were provided for. In a
way, we were generous with gauging
inflation and keeping our investment
return expectation realistic.CURRENT AGE YEARS 41
RETIREMENT AGE YEARS 60
YEARS TO RETIREMENT YEARS 19
LIFE EXPECTANCY YEARS 80
SURVIVAL YEARS POST RETIREMENT YEARS 20
CURRENT HOUSEHOLD EXPENSES `Per annum (12,00,000.00)
EXPECTED INFLATION % 6.00%
EXPECTED RETURN (post tax) % 12.00%
REAL RETURN % 5.66%
HH EXPENSES AT RETIREMENT AGE (36,30,719.40)
RETIREMENT CORPUS 4,52,40,569.27
MONTHS TO RETIREMENT 228
SAVINGS REQUIRED PER ANNUM (`4,54,895.36)
SAVINGS REQUIRED PER MONTH (`35,119.15)CURRENT SAVINGS FOR RETIREMENT -15,00,000.00Khosla’s Expense Account
Return on Investments
SACHIN JAIN,
Director,
Moneygain Consultants Ltd.